Civil Air Transport (CAT): A Proprietary Airline 1946-1955

'§TrmME-T —

CS Historical Papor

No. — 51

Volume I of IV

CLANDESTINE SERVICES

HISTORY

(Tine or mphu

CIVIL AIR TRAN SPORT (CAT)

A PROPRIETARY AIRLINE -
(nuoo)

1946 - 1955

DO NOT DESTROY

Date published: April 1969 Controlled by . SO Division

Copy #2 of 2 copies prepared . April 1967

Written by , Alfred T. Cox

NOTICE

1. This historical paper it a permanent part of the Clandestine Services
History, and may not be destroyed.

2. It it included in the “ Catalog of CS Histories" maintained by the
Clandestine Services Group of the Historical Staff (HS/CSG), O/DCI.

3. If this document is moved from the office of control appearing on
the front of this cover, the DD/P Representative, Historical Staff,
O/DCI, should be Immediately notified of the new office of control.

2485

ua-W)

C R E T

CS Historical Paper
No. '87

VOLUME I of IV

CLANDESTINE SERVICES HISTORY

CIVIL AIR TRANSPORT (CAT)
A PROPRIETARY AIRLINE
1946 - 1955

Copy No. 1 of 2: SOD Controlled by : SO Division

Date written : April 1967

Copy, No. 2 of 2: DDP Date published: May 1969

Written by : Alfred T. Cox

E T

SEC

S EX ret

TABLE OF CONTENTS
Volume I

THE HISTORY OF CIVIL AIR TRANSPORT (CAT)

1946-1955

Preface i

I . INTRODUCTION 1

II. FORMATION OF CIVIL AIR TRANSPORT (CAT) -

1946 3

III. U.S. CHINA POLICY - SPRING AND SUMMER -

1949 . . 10

NSC 34/2 10

I ~ " ~~~ I 17

IV. CAT SUPPORT OF CIA ACTIVITIES 59

Propaganda 60

The Korean War * 78

Other 89

V. CNAC-CATC LITIGATION 1949-1952 95

VI . REFERENCES 130

Volume II

CAT MANAGEMENT AND CONCLUSIONS

I.. CAT MANAGEMENT ACTIVITIES 1

Management, Legal, Fiscal and Accounting 1
Aspects ......

Cl A/ GAT Field Accounting ... 70

Security ....... 81

Communications . . . . . . , 95

Establishment of the

in CAT - 1954 . . L ■ - r~r— 1 102

II. CONCLUSIONS REACHED 107

Value of CAT as an Operational Asset . . 107

CAT Support of Agency Requirements. . 107

Covert Transportation in Support

of CIA Activities. 107

Logistical Support of CIA Stations

in the Far East 110

CAT as an Instrument of National

Policy HO

Other Activities 112

V'

III. REFERENCES

157

Volume III

PRINCIPAL CAT/CIA PROJECTS AND ACTIVITIES

THE PICKUP OPERATION ............ TAB J

INDOCHINA - LIMITED VICTORY IN 1953 -

DIEN BIEN PHU AND DISASTER IN 1954 .... TAB K

THE CATHAY-PACIFIC (CPA) INCIDENT ....... TAB L

CAT INTERNATIONAL AND DOMESTIC OPERATIONS -

SCHEDULED AND NON- SCHEDULED TAB 0

ENGINEERING AND MAINTENANCE . ! TAB P

PERSONNEL AND TRAINING TAB Q

Note: Reference bibliographies, when used,

are at the end of each tab.

Volume IV

REPORTS OF INTERVIEWS

I. INTERVIEW WITH MR.[ ____ ,• .■ • ■

II. INTERVIEW WITH MAJOR GENERAL W. RAY PEERS .

III. INTERVIEWS WITH MRS. LOUISE WILLAUER . . .

IV. INTERVIEWS WITH MR. THOMAS G. CORCORAN . .

V. INTERVIEW WITH MAJOR GENERAL WILLIAM E.

DEPUY, USA

1

13

25

35

70

VOLUME I

THE HISTORY OF CIVIL AIR TRANSPORT (CAT)
1946 - 1955

t

PREFACE

The writer of this Historical Paper, Mr. Alfred
T. Cox, had served with the OSS during World War II in
both the European and China Theaters. While in China,
he had become acquainted with Major General Claire L.
Chennault, whose 14th Air Force flew the training and
operational missions of the Chinese Commandos, for
which Cox and his OSS command were responsible. After
the war Cox maintained occasional contact with
Chennault, who had remained in China, and, in partner-
ship with Mr. Whiting Willauer, had established a non-
scheduled domestic airline, as recounted in the paper.

Cox was called to duty with the Office of Policy
Coordination (OPC) in early 1949, at a time when
Chennault had returned to Washington and was urgently
pleading with Government leaders for effective assist-
ance to the Nationalist Government to prevent a complete
Communist takeover in China. When policy approval was
given for OPC to explore the possibilities for lending
such assistance, it was agreed that Cox, under the
very plausible cover of a special assistant to
Chennault, particularly for political and military
affairs, would go to the field

S Ex; RET

As he became more and more involved in the ’

j

management of the airline, he was named its vice
president. Then, when Willauer resigned in 1952,

Cox was designated president of the airline, a post
which he held until 1 January 1955, at which time he
returned to Headquarters. (During the period in which
he served as president of the airline, Cox did not
hold any Agency employment status since it was felt
that it would have been impossible for him to have
carried out his responsibilities under the restrictions
of compliance with governmental administrative
regulations . )

It was agreed that Cox could not carry out the
joint responsibilities of airline president

and that a senior Agency officer
should be placed under airline cover to assume the

responsibilities. This was not

accomplished until the arrival in the field

As noted in the paper, Cox has written of the
events of the period as seen from the viewpoint of the
man in the field. He has not made any contact with the

overt airline office in Washington, but he has made
extensive research of such Agency files that could be
located. In order to present a complete record,
therefore, it will be necessary at some point to have
a parallel paper written, setting forth the story as
seen from Washington and Headquarters. As Cox has
noted, differences of opinion will be evident in the
two papers, but such differences will be factual and
true.

Mr. Gates Lloyd, who was the Senior DDS officer

most familiar with the administrative and management

aspects of the airline, wrote a short paper before

his retirement, in which he traced the fiscal record

1 /

of the airline after the Agency involvement.— It is
by no means a Historical Paper, but it will probably
be useful to the writer who undertakes the parallel
paper noted above.

iii

INTRODUCTION

I .

The purpose of this paper is twofold; first to
recount the history of Civil Air Transport (CAT) , with
regard to its establishment, commercial operations,
provision of air support for Agency and other U.S.
national objectives, and the provision of cover for
Agency personnel under which they could carry on other
Agency activities. This is followed by a general dis-
cussion of the factors that should be considered in the
establishment of any other similar air support capability.

This particular paper is written almost entirely
from the viewpoint of the man in the field. It can be
truthfully said that there are two versions, at times
quite divergent, of the history of CAT. There is the
viewpoint of the man in the field as presented herewith,
and there is the viewpoint of the man in Headquarters
who is charged with the administrative details of nego-
tiating arrangements with CAT management and eventually
of the purchase of the airline. Although the two stories
may appear to differ radically, neither is necessarily
false. Relationships in the field between Agency person-
nel and CAT management were extraordinarily harmonious

S E C\R E T

and cooperative. Relationships at Headquarters between
Agency personnel and CAT management (Mr . Thomas G.
Corcoran, Major General Claire L. Chennault, USA (ret.),
Mr. Whiting Willauer and Mr. James J. Brennan) were
often strained and bitter with a mutual interchange of
mistrust and suspicion.

Certain specific operations or sets of circum-
stances have been selected for separate treatment as
annexes to the basic paper. This is because the partic-
ular series of events described are of a type that can
rather readily be separated from the main papers, that
lend themselves ts> the telling of a story with human
interest beyond the more prosaic recital of a chronology
of historical events, and because the nature of the
events described may be such as to require a higher
security classification than that of the basic paper.

2

II . FORMATION OF CIVIL AIR TRANSPORT (CAT) - 1946

The story of Chennault and his Plying Tigers
(American Volunteer Group - AVG) and their support of
the Chinese Nationalists is very well known and hardly
requires repeating. It is sufficient to indicate that,
at the close of World War II, Chennault held an un-
paralleled position of esteem with Generalissimo and
Madame Chiang Kai-shek, and in the hearts and minds of
the Chinese people. Willauer, although not as well
known publicly, had also been of brilliant service to the
Chinese Government of World War II. He received his
B.S. degree from Princeton and his law degree from
Harvard, and then held a position as a legal advisor
to the Civil Aeronautics Board in Washington in 1939.

In 1941 he became a special assistant in the U.S. Depart-
ment of Justice, and then became a member of the China
Defense Supplies Corporation (CDS) headed by Doctor
T.V. Soong. Later, in 1944, Willauer became Director
of the Far Eastern Branch of the Foreign Economic Admin-
istration. He and his family became well known in the

2 /

Orient from Shanghai to Hong Kong and Tokyo.—

Chennault and Willauer had become firm friends
during World War II, and in the fall of 1945 they formed

3

a partnership for the purpose of organizing a new air-
37

line in China.” Both were convinced that there was an
urgent requirement for airlift in China because of the
vast distances and the inadequate communications net-
works . They estimated that they would require about
$250,000 of working capital to tide the airline over
until it could support itself. In the United States
they were associated with Mr. Corcoran, the famed
’’Tommy the Cork” of the New Deal era and a senior
partner in the law firm of Corcoran, Youngman and Rowe
(now Corcoran, Foley, Youngman and Rowe) . Corcoran was,
in effect, a silent but potent partner of Chennault and
Willauer. He was very highly connected, on a first-
name basis with the most important political leaders,
and was capable of exerting a very considerable influ-
ence. These three men formed an extremely formidable
trio, each one bringing to the partnership abilities
and skills supplementing those of the others. They
entered into negotiations with Mr. Robert Prescott,
president of the Flying Tiger Line (U.S.) and a former
pilot of distinction with Chennault 's Flying Tigers
prior to U.S. entry into World War II. It appeared*

that Prescott and his associates would be willing to

4/

provide the necessary working capital. -

Prescott sent his brother, Louis, to China in the
fall of 1946 to complete the negotiations for the provi-
sion of the working capital and to act as comptroller
of the funds when furnished, En route to China, Louis
was killed by a stray shot meant for someone else while
quietly reading a newspaper in the lobby of a Manila
hotel. When he was accidentally murdered, there was no
one available in the Flying Tiger organization to take
his place and, therefore, the line backed out of the
proposed deal.

This left Chennault and Willauer in desperate
financial straits. They had obtained an airline fran-
chise from the Chinese Nationalist Government (ChiNats)
and had made arrangements for the purchase of surplus
aircraft in Manila and Honolulu. They estimated that
they had only enough money left between themselves to
carry on as they were for about a month and a half
longer. They turned to Chinese bankers and, after 35
days of intense negotiations, were able to raise the
necessary funds. They were greatly assisted in this
by Doctor Wang Wen-san, a Chinese banker, and Mr. L.K.

Taylor, a businessman with a long background of '

5/

experience in the Orient. -

The Chinese National Relief and Rehabilitation
Administration (CNRRA) , the Chinese counterpart of the
United Nations Relief and Rehabilitation Administration
(UNRRA) , was in urgent need of an airlift which would
connect such seaports as Shanghai and Canton to the
small cities and villages of the interior where consumer
items were so desperately needed. Although there were
two other airlines operating in China, the China
National Aviation Corporation (CNAC) , with 20 percent
Pan American Airways ownership, and the Central Air
Transport Corporation (CATC), wholly owned by the
Chinese Nationalist Government, CNRRA had found by
experience that these lines could not be relied upon
for consistent response to their requirements. On
25 October 1946, CNRRA signed a contract with Chennault
and Willauer to provide the required airlift by means of
an airline company to be organized by Chennault and
Willauer and to be known as CNRRA Air Transport (CAT).*
As soon as this contract had been signed, negotiations
were undertaken to obtain surplus cargo C-47 and C-46
aircraft. Five C-47's were purchased in Manila and
flown to Shanghai on 27 January 1947. The first offi-
cial flight for CNRRA from Shanghai to Canton had been
made on 21 January 1947 in an aircraft that was already

♦Middle 1948 renamed Civil Air Transport (CAT) .

6

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S E

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s

available. Eighteen C-46's were purchased in Honolulu;
after they had been ‘'unpickled" and put into flying con-
dition they were flown to China. The first three of the

6 /

eighteen C-46's arrived in Canton on 1 March 1947. ~

As rapidly as possible, CAT went into continuous
operation, carrying relief supplies from the various
ports to the interior. Often there was space available
on the aircraft when they returned from the interior,
and individual CAT pilots were the first to realize
that this represented a valuable economic opportunity.

On their own, they began to make purchases in inland
areas of such raw materials as cotton, hog bristles,
tobacco leaf, wolfram, tin, etc., which were in great
demand in the major seaports. On those occasions when
there was space available on inbound flights, such
finished items as bicycles, which were in great demand
upcountry, were used to take advantage of the available
space and were resold or bartered at a substantial
profit. It did not take long for the CAT management to
recognize these profitable opportunities, and they
formed a trading corporation known as the Wi Hauer

Trading Company/ which was established as a preferred
customer of CAT and had firs*t call oa^avallable space.
This company was managed by Taylor, who has been

7

mentioned previously. It became a rather profitable
business venture. There was propably some ill feeling
amongst those pilots who had been operating independ-
ently, but they recognized the right of management to
have first call on the use of their aircraft'.

In the latter part of 1947, the momentum of the
Chinese Communists' (ChiComs) advance began to accel-
erate and to have an effect on CNRRA's operations. The
effect of this advance on CAT operations has been vividly
described in a short history of the line.

"In the latter part of 1947, CAT began its
historic flights against time — that is, the time
left before the entry of the Communist forces
in one town after another. First it was Weihsien
in Shantung Province where CAT kept a Communist-
surrounded city in food and essentials for many
weeks while evacuating essential personnel to
safety before the city finally fell. This pattern
was to be followed in town after town as CAT
planes flew in and out steadily on evacuation
missions even while shells burst on the runways,
sometimes damaging the planes.

"On the mainland, CAT (which became Civil
Air Transport operating as a private concern in
the middle of the year 1948) maintained field
offices in cities from China's far north to its
most southern points and from its eastern sea-
ports to its western frontiers. In many instances,
all business matters as well as operations had to
be conducted on the airfields, and our personnel
were called upon to transact every phase of air-
line operations and business no matter how-ske-tchy
their previous experience or training might have
been. In most cases, our people outdid themselves
to accomplish the best possible achievements for
CAT; challenging, perhaps because the company was

8

not only new and still not well organized, but
also because the tasks set before many of us were
of such proportions as to be almost impossible.
Everyone gave his best ef forts ' without stinting,
and felt a personal pride in each and every
incident that brought fame and renown to CAT.

Then too, CAT was fighting China's war — a losing
war to be sure — not with guns and bullets but
with airline facilities, the only way available
to bring out evacuees from surrounded cities as
well as to bring supplies to those who had to
remain behind.

"As China's mainland fell slowly under the
iron curtain from the north to the south, CAT of
necessity moved its people, its planes, and its
maintenance shops first from Shanghai to Canton,
then from Canton to Kunming, then from Kunming to
Hainan Island, and finally in utter exhaustion
and confusion from Hainan to Taiwan. To those who
know even a little of the importance to success-
ful airline operations of permanent well-equipped
maintenance facilities, it is readily under-
standable what a difficult time CAT had during
the years of 1948-1949. Our whole structure was
jolted from one town to another only a few jumps
ahead of our enemies, the Reds. CAT pilots were
haggard, thin and exhausted from months of flying
unheard-of schedules with no thought of refusing,
because China's plight was obvious. CAT ground
crews worked long, uncomplaining hours on air-
craft, though schedules were so busy that
maintenance was of necessity at a minimum and
shops were moved so often that as much time had
to be spent on assembling shops as on maintain-
ing airplanes. CAT aircraft were dusty and
dirty, but, like the pilots who flew them, they
kept going until the pressure was off; that is,
when Kunming fell in December of 1949. CAT found
itself pushed back to Hainan, Hong Kong and Taiwan
In April of 1950, Hainan, mainly through defection
fell into the Red's hands and CAT fell back to
China's last free bastion--Taiwan. " 7/ 8/ • • -

III. U.S. CHINA POLICY - SPRING AND SUMMER - 1949

NSC 34/2

As the Chinese Nationalist situation steadily
deteriorated throughout 1948 and early 1949, the U.S.
posture crystallized into what the Nationalists con-
temptuously termed a "wait and see" policy. From the
military viewpoint, Major General David Barr, USA, in
command of the Joint United States Military Advisory
Group (JUSMAG) was convinced that the Nationalist .
strategy of clinging to over-extended lines of com-
munication, poor generalship, the absence of respon-
sibility to the Supreme Command, the lack of an ef-
fective air force, and the ingrained dislike of destroy-
ing or abandoning supplies (which were, of course,

taken over by the ChiComs and used against the ChiNats)

9/

doomed the Nationalists to defeat On 18 December

10 /

1948, General Barr advised that: —

"Marked by the stigma of defeat and the
loss of face resulting from .the forced evacu-
ation of China, north of the Yangtze, it is
extremely doubtful if the Nationalist Govern-
ment could muster the necessary popular support
to mobilize sufficient manpower in this area
(South China) with which to rebuild its forces
even if time permitted. Only a policy of • ■
unlimited United States aid including the im-
mediate employment of United States armed forces
to block the southern advance of the Communists,
which I emphatically do not recommend, would

10

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enable the Nationalist Government to maintain a
foothold in Southern China- against a determined
Communist advance .... The complete defeat
of the Nationalist Army is inevitable."

Even though Generalissimo Chiang Kai-shek had
nominally retired and gone into seclusion on Taiwan he
had clung to the real reins of authority in the govern-
ment and in the army. His successor as President, Li
Tsung-jen, rather highly regarded as a man of integrity,
was effectively neutralized in his efforts to institute
real reforms, eliminate corruption, and stay the general

deterioration. Ambassador Leighton Stuart strongly

11 /

endorsed General Barr's views.

In view of the unanimity of reporting by highly

competent observers who were on the spot, the National

Security Council (NSC) in early February 1949 decided

tentatively to avoid commitments to any factions and to

suspend shipments of supplies, even those en route. On

3 March 1949, the President approved NSC 34/2 as a

12 /

statement of United States policy toward China. —

One of the recommendations made in NSC 34/2 was as
follows:

"We should avoid military and political
support of any non-Communist regime in China
unless the respective regimes are willing
actively to resist Communism with or without
U.S. aid and, unless further, it is evident
that such support would mean the overthrow of,

or at least successful resistance to, the
Communists . "

The approval of this recommendation by the Presi-
dent effectively ruled out any consideration of OPC
support to the Nationalist Government as such, since,
as stated previously, it was the considered opinion that
the Nationalists could hold South China only by a policy
of unlimited aid and the immediate employment of U.S,
Armed Forces. Furthermore, the proviso that any support
to other indigenous elements that "would mean the over-
throw of, or at least successful resistance to, the
Communists" appeared to rule out any other courses of
action. A further statement of policy appeared in para-
graph 18 of NSC 34/2:

"Our principal reliance in combating Kremlin
influence in China should, however, be on the
activities of indigenous Chinese elements. Because
we bear the incubus of interventionists , our of-
ficial interest in any support of these elements,
a vast and delicate enterprise, should not be
apparent and should be implemented through appro-
priate clandestine channels."

Mr. Frank G. Wisner, Assistant Director for Policy
Coordination (ADPC) , immediately asked the Policy Plan-
ning Staff of the Department of State for instructions

13/

as to how to proceed in implementing this policy*. —

The reply from State left little doubt that they con-
sidered that the implications of the NSC action lay

almost entirely in the realm of propaganda. A short

statement near the close of the reply mentioned the

eventual possibility for "large scale clandestine

material support" to organize Chinese anti-Communist

movements, "but both the situation in China and our

operations there will have to develop considerably

14/

before such possibilities materialize." — State
believed that covert propaganda in the form of news-
papers, leaflets, radio, and the encouragement of
rumors would be most immediately useful.

On 16 April 1949 Ambassador Stuart in Nanking
advised that he had been directly approached by Ma

Hung-kuei, Nationalist general and warlord of Ninghsia

15/

Province in Northwest China. — Ma had emotionally
expressed his determination to continue to fight
against the Communists until the very end. Ma was a
Moslem, and the hard core of his combat troops were
Moslems. He stated that his primary and most urgent
need was for ammunition for his weapons in order to
keep up his struggle. Ma had previously been reported
as having introduced various reform measures in his
province and for having done a good job in training'"
local militia units, but his ability as an Army Com-
mander in large-scale warfare had not been tested.

Ambassador Stuart was favorably impressed and recom-
mended that State give consideration to giving some
form of effective assistance to Ma. On 19 April,
Minister Lewis Clark in Canton commented favorably on
Stuart's recommendation

At this point OPC drafted a proposed response to

Stuart and Clark indicating that State recognized the

advisability of exploring the Ma proposal. Ma should

be given restrained encouragement, and the Department

should be kept informed of Ma's whereabouts. State

decided against the reply on the basis that Stuart

could not act upon it and that Clark would not be

17/

sufficiently secure. —

As spring moved on toward summer in 1949, the
political climate in Washington with regard to China
began to heat up. More and more attention was being
given, with comment in the daily press and in respon-
sible periodicals, with regard to the so-called "wait
and see" policy and to the impact on Southeast Asia
(SEA) in the event of a complete ChiNat collapse oh''
the mainland. Chennault returned to Washington from
China in early May 1949, determined to remain in the

States until the U.S. Government adopted a firmer anti-
communist policy toward China. With his tremendous
prestige as the founder of the famed Flying Tigers and
later Commanding General of the 14th Air Force, he
gained ready access to the highest levels in govern-
ment. He appeared before the Senate Foreign Relations
Committee in early May, leaving with them a prepared
statement with accompanying appendix, and discussed the
situation in China in detail with members of the com-
mittee. He met with the Secretary of State and
Dr. Philip Jessup, and with the Director of Central
Intelligence. Other prominent Americans with broad
experience in China, such as Lt. Gen. Albert C.
Wedemeyer, USA; Admiral Oscar C. Badger, Commander
U.S. Naval Forces, Far East; and Admiral Charles Cooke,
USN (ret.), swelled the chorus of those supporting
Chennault's position.

On 9 May 1949 senior OPC officials met with
Chennault in the General's office in the Hotel
Washington. Those attending were Messrs. Frank G.

Wisner, Carmel Offie, Franklin A. Lindsay and

18/

I — The General gave to Mr . Wisner a

copy of the prepared statement submitted to the Senate
Foreign Affairs Committee, and then discussed the

s

statement in detail. In summary, the General felt
that, with adequate assistance, Western China could
be held on a line running roughly fron Ninghsia south-
ward to Hainan Island. He attached major importance to
Yunnan Province. He discussed a number of leading
Chinese personalities, mainly provincial governors,
speaking most highly of Ma Hung-kuei. He expressed his
personal loyalty to the Generalissimo, but did not
press for the channeling of assistance through the
Nationalist Government. Instead, he urged that an
American Mission should be established with elements
located along the lines of communications and combat
fronts, and that all aid should be sent to the Mission
to be distributed by them to the fighting armies. He
stated that he had just received a communication from
Chiang Kai-shek in which the latter expressed himself
agreeable to such an arrangement.

The General also discussed the current status of
his airline, Civil Air Transport (CAT), and his plans
for i'ts future operations. No mention was made at this
meeting as to possible utilization of CAT for support
of OPC operations .

A memorandum from the Department of State to OPC,
on 8 July 1949, indicated that the Secretary of State,

S E CNR E T

in conference with Mr. Paul Hoffman and Mr. Roger D.
Lapham, had specifically rejected the subsidization of
American airlines in China, including CAT.

substitute for the positive operations envisioned in
19/

NSC 34/2. —

It was considered that, under the broad policy of
NSC 10/2 and of Mr. George H. Butler's (State Depart-
ment) interpretation of NSC 34/2 (see pp. 12 and 13),
OPC could make a survey of current conditions on the
Chinese mainland, for the purpose of preparing recom-
mendations as to possible actions to be undertaken.

At the direction of the ADPC, therefore, a project was
prepared which outlined the purposes of such

a survey and established the necessary budget. This
project was approved by ADPC on 6 June 1949.

A considerable amount of thought was given to the
selection of a suitable individual

I

for the project. It was considered quite
important that the individual so selected should have

had previous experience in China. The final determi-

nation was made that Mr. Malcolm Rosholt was admirably

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suited for this assignment. A few words might be
pertinent at this time with regard to Bosholt . He was
a journalist/lecturer who, prior to World War II, had
spent a considerable amount of time travelling through-
out China and had acquired an adequate fluency in the
language. During World War II he had served with the
OSS, most of his time being spent as liaison officer
with General Hsieh Yo in a large pocket of resistance
in South China between the Pacific shores and the
internal Japanese lines of communication. After the
war he had continued his interest in Chinese affairs,
lecturing to various audiences in the United States.

He was contacted at his home in Rosholfy Wisconsin,
and invited to Washington, where the purpose of the
project was explained to him, and he was asked if he
would undertake the responsibility ! j

He very willingly

Consideration had also been given to the project
outline to insure that Rosholt would be able to travel
as freely as conditions permitted throughout those areas
of China which were still accessible, with particular
regard to the northwest. Arrangements were made with
Chennault to write a letter to his partner, Willauer,

accepted the assignment.

S E (a R E T

introducing Rosholt and requesting that CAT furnish him
transportation as best possible to wherever he might
wish to go. Consideration was also given to providing
Rosholt with means of communication.

it was no problem to

arrange communications from Hong Kong.

As matters turned out

when Rosholt arrived in the field he decided that for
security reasons it would be best that he not use CAT
or any communications facility [

Rosholt departed from Washington in late June.

he departed for upcountry.

He had very little difficulty in arranging for trans-
portation through CAT. He proceeded up into the north-
west and made contact with Ma Pu-fang, ascertaining

S E 5\R E T

his general situation, his strength -and his intentions.
Ma Hung-kuei, an ill man with a bad diabetic condition,
was discounted as a possibility of strength. Rosholt
contacted other war leaders, including General Pai
Chung-hsi in Kwangsi and his old friend General Hsieh
Yo in Kwangtung. He reported back to Headquarters when
and as he could. By the time he returned to Washington
in late August, Headquarters had a pretty fair outline
of the recommendations Rosholt would make regarding
possible assistance to resistance on the mainland.

On 1 and 2 September 1949, ADPC and members of his
staff briefed the Secretary of State, Dr. Philip Jessup,
and Mr. George Kennan concerning the situation in
Southwest and Northwest China and OPC potentialities in
that area.” 7

ADPC notes in his memo that Rosholt had acquitted

himself extremely well in rendering an accurate and

factual report of what he had seen and what he had been

21 /

told during the course of his survey mission. — In

addition he was in the process of preparing a series

of memoranda covering the historical record of key

personalities who might be involved and certain -

22/ 23/

economic possibilities in minerals, oils, etc. — —

v20

S E CNR E T

E T

During the course of the two meetings Dr . Jessup
raised the following questions:

a. Would it be possible to undertake a
series of fairly substantial support projects
in a completely secure manner?

b. Assuming that a program or programs
were undertaken and the news got around and
questions followed, what could the State
Department do and what could they say?

c. If it became generally known that
the U.S. Government was involved in this sup-
port program, would it not follow from this
that the honor and prestige of the United
States were involved in the success or
failure of the resistance effort?

d. On behalf of the Secretary,

Dr. Jessup also wanted our estimate of the
cost of the program.

Dr. Jessup said that he could not understand why
the Russians were able to do these things and get away
with them, while at the same time it was thought it
would be so difficult for us to operate without '*
exposure .

21

Mr. Wisner gave tentative answers to these questions
and instructed his staff to prepare formal answers to
each as rapidly as possible.

There followed a series of memoranda which
attempted to give honest and realistic answers to these
questions. It was recognized that the larger and more
complex any support program might be, the greater was
the risk of suspicion that the U.S. Grovernment was
involved.

On 27 September 1949, a formal proposal was sent

24/

by ADPC to Mr. George F. Kennan. It pointed out

that the CIA had a responsibility for providing a con-
tinuous flow of intelligence information from foreign
areas, including China, and that OPC was specifically
directed to engage in psychological warfare against the
Chinese Communists and to exploit possibilities of
reducing the influence of Soviet Communism in China.
Current CIA and OPC field facilities were inadequate
and all available time would be required to establish
effective staybehind networks and underground channels.
The only practical way of securing additional time
would be immediately to undertake such clandestine"
action as was possible in order to resist and impede
the Communist conquest of the remaining free areas of

China .

The paper requested that immediate authorization
be given for carrying out the following program:

"6. Minimum Requirements:

It had been decided that since time was such a
vital factor and since assets it had hoped could be
preserved were rapidly disappearing, suitable person-
nel should be dispatched to the field so as to be in
position to implement any measures receiving policy
approval. In the event that such policy approvals were
not forthcoming, such personnel were to observe the
situation on the mainland and report their observations
to Headquarters . A number of individuals were con-
sidered for this assignment, a few were contacted, but
none could be located who were willing to undertake the

mission .

S E\C RET

At that time, Alfred T. Cox was serving as a
Special Assistant to the Chief of Operations OPC, and

following the return of Rosholt. Cox had earlier
served with the OSS in North Africa, Italy and France
in 1943 and 1944, and in China during the last year of
World War II. He had been associated with and had
maintained a friendly relationship with General
Chennault . He did not have the language or area knowl-
edge that Rosholt possessed, but he had had a consider-
able amount of military experience and was also
familiar with Headquarters procedures and with the
problems involved in interdepartmental relationships.

He was asked if he would accept a TDY assignment to
implement any of the measures that might be approved
by the State Department. Cox agreed to do so, and
Rosholt indicated that he would be glad to accompany
Cox and to serve as his principal assistant.

It was arranged with General Chennault that CAT
would provide cover for both Cox and Rosholt. Cox
could act as a Special Assistant to the General with
particular responsibility for political and military
affairs, and Rosholt, in view of his journalistic

24

background, would be assigned as a member of the air-
line's public relations staff. After rather hurried
briefings, Cox departed for Hong Kong on 3 October 1949
with General and Mrs. Chennault, without waiting for
State approval of the program proposed in ADPC's memo-
randum of 27 September 1949. Rosholt followed two or
three days later. General and Mrs. Chennault and Cox
arrived at Kaitak Airport in Hong Kong on 8 October 1949
They were met by Mr. Whiting Willauer, by Mr. James J.
Brennan (the treasurer and secretary of CAT) and by
other operating officials. The General retired to his
residence to rest, and Cox, Willauer and Brennan met
throughout the afternoon in Cox's room in the
Gloucester Hotel. Cox briefed Willauer and Brennan in
full on his mission and his cover; future procedures
were then discussed.

It has been previously noted that the mission
departed for the field without waiting for State policy
approvals. On 4 October 1949, ADPC received a memo-
randum' from Mr. Kennan, the Counselor of the State
Department, which stated that it was considered that
OPC was justified in proceeding at once to make a' very
discreet on-the-spot evaluation of the situation with
regard to the objectives stated in Mr. Wisner's memo

25

SECRET

S E\C E E T

25/

of 27 September. — Mr. Kerman suggested that con-

tinued planning be carried on with a view to mounting
the full program as soon as careful evaluation had
determined that there was a good chance of its success.
He requested that he be kept informed of progress. The
memorandum assumed that funds for the second phase of
the program would be available from CIA appropriations
as there was no assurance that State would have funds
available for the purpose.

Headquarters had quite properly decided that Cox
and Rosholt would depart for the field under the author-
ity provided

since State policy

approval had not been received for further action.
Once the policy approval from Mr. Kennan was received,

was drafted and was approved by
26/

Mr. Wisner on 12 October 1949. — The objectives, of
the project were:

a. Bolstering of selected elements in
areas of China not under Communist domination
which were resisting or were capable of resist-
ing Communism.

b. Conduct of appropriate OPC activities -
against the Communist domination of China.

26

c. Establishment of adequate standby
facilities for the conduct of appropriate
activities in China subsequent to Communist
domination .

In order to accomplish these objectives, it was

proposed^ Zj on a subsidy

project basis for a series of specifically related oper'
ations, each to be described, approved and implemented

Such operations could include, but

were not limited to;

1. Utilization of CAT as a means of provid-
ing cover, communications, and transportation
facilities for the achievement of the objectives.

' 27/

by Mr. Wisner.

On 10 October a quick visit was made to Canton,
which at that time was the central operational base for
CAT. The fall of Canton was imminent, and feverish
preparations were under way to evacuate personnel and as
much material as possible to Hong Kong. The LST, which
contained a large amount of stores as well as shop
equipment, and the supply barge departed for Hong Kong
on the 12th. Willauer and Cox also returned to Hong
Kong on the same day. CAT completed its evacuation of
Canton on the 13th, the day on which the Communists
moved in and took over the city. There were some last-
minute problems as the coolies at the airfield, realiz-
ing that their source of livelihood was leaving, tried
to prevent the departure of the last aircraft. Willauer
made a quick trip to Canton, and by means of bonus pay-
ments was able to effect the release of the planes .

Chennault and Cox proceeded to Taipei on 15 October,
and were provided quarters at the Generalissimo's guest
house in the sulphur springs area to the west of the
city. The Generalissimo granted Chennault an interview
on the afternoon of the same day. Chennault and-Coar
had agreed that it would be better for Chennault to go
unaccompanied because of his singular personal

SEC

T

s

relationship with the Generalissimo. At this meeting
Chennault briefed the Generalissimo in accordance with
the cover story to the effect that private American
citizens were willing and in a position to grant assist-
ance directly to field commanders on the mainland who
were continuing their resistance against the Chinese
Communists. At this first meeting the Generalissimo
was noncommittal, obviously not entirely happy, and told
Chennault that he would see him again the following day.

On the 16th Chennault again met with the General-
issimo who advised that he would not object to or
interpose any interference with the implementation of
the plan proposed by Chennault, but he foresaw certain
problems, particularly as regarded the morale of the
leaders and troops who did not receive such assistance.

Thus, with a sort of mixed blessing, it was agreed that

28/

the project could go forward. —

Chennault and Cox returned to Hong Kong and then
went on to Chungking. A meeting was arranged shortly
after arrival with President Li Tsung-jen, Premier
Yen S^hi-shan and members of their cabinet. Chennault
again repeated the cover story to the President a'nd'*'
Premier. They naturally were quite agreeable and
grateful for the proposed program as they recognized

29

S E C\R E T

that it would bypass the Generalissimo's control over
those leaders who were more loyal to the President
than to the Generalissimo. Early the next morning,
Chennault and Cox returned to Hong Kong.

Having satisfactorily completed all of the protoco!
arrangements, Cox and Rosholt immediately proceeded to
Kweilin, which at that time was the headquarters of
General Pai Chung-hsi. Before arrival they were able tc
get word to Pai that they would like to meet with him.
When they landed, one of Pai’s principal staff officers ,
a General Lee, who spoke nearly adequate English, met
them in a rather dilapidated sedan which, nevertheless,
was the pride of Pai's motor pool. They were taken at
once to Pai's headquarters.

After introductions and an exchange of pleasantries
Cox and Rosholt went into conference with Pai, Lee acts
as Pai's interpreter. The two Americans told Pai that
they wished to be apprised of the current situation in
his area and his future intentions. Pai stated that he
intended to fight the Communists until the end, even if
it meant falling back into redoubt areas and carrying
on guerrilla warfare. He then outlined his current"
position. His front lines, stretching from east to
west, north of Kweilin, were under heavy pressure from

the Communist forces. His left flank was rather securely
anchored in the foothills leading up into the Yunnan
Mountains. His right flank was giving him his major
concern. This area extended halfway between the
Kweilin - Liuchow - Nanning axis eastward to a point
about halfway between that axis and Canton. Pai was
aware that the Generalissimo was in the process of
pulling armies out of the areas to his east and remov-
ing them to Taiwan. ' The Communists had been attempting
a double encirclement which he had had no trouble in
containing on his left flank, but he was concerned very
much with regard to the right flank. At the same time
the Communists were continuously maintaining heavy pres-
sure on his front line, making it both difficult and
risky for him to attempt to pull out any of his forces
to bolster his right flank.

Cox and Rosholt then discussed privately their next
action. They agreed that, particularly since Ma Pu-fang
had been forced to flee and his resistance in the north-
west had collapsed, Pai represented the only truly
significant anti-Communist effort on the mainland;
thus, giving assistance to him to bolster his morale-
and to increase the effectiveness of his effort was
justified. It was decided that Rosholt, having command

S EX? RET

of the Chinese language, would remain with Pai at his
headquarters for a few days to continue his observa~
tions and inspect as many of the troop units as possible,
while Cox would return to Hong Kong in order to cable
the recommendations to Headquarters. Cox departed early
the next morning for Hong Kong and from there cabled to
Headquarters a summary of the conversations with Pai and
a recommendation that assistance

29/

be furnished him as quickly as possible.

Headquarters approved the recommendation and reportec
that arrangements were being made with the Treasury

This money was provided rather quickly, but

there still remained the problem of how and in what form

these funds were to be transferred to Pai.

It was agreed by all that the funds for Pai should

not be furnished in the form of U.S. currency because

of the requirement of nonattributability . It had been

suggested, moreover, that the funds be furnished in the

form pf silver dollars, but the great weight of this

30/

amount of dollars made this impossible. — Since the

30.

The silver dollars would have weighed well

overj J requiring at least two C-46 flights.

It would have been impossible to take such a load out
of Hong Kong and into Kweilin securely and without
observation.

Hong Kong dollar was as acceptable as the U.S. dollar
in Southern China, it was therefore decided that the
payments would be made in Hong Kong dollars.

At that time the uncertainty of events on the main-
land and speculation as to the future of Hong Kong itself
was causing a wide daily fluctuation in the free money
exchange market in Hong Kong. The sudden dumping of

U.S. dollars on the Hong Kong exchange would

be noticed, if only as a matter of curiosity, and
undoubtedly would have an effect on the rate of exchange.

Through Wi Hauer it

was arranged for the exchange of U.S. currency in incre-
ments so as not to affect the market unduly; Willauer
used the cover story that heavy losses sustained by CAT
in the evacuations on the mainland forced the company
to find financial support in the U.S. so as to meet it's
more pressing obligations. This was a reasonable story
in view of CAT's successive evacuations, losses of

s ex ret

material, and losses in exchange, particularly in

Chinese currency.

two

large wicker baskets were required to transport this
currency. With the assistance of CAT operational
personnel, the two baskets were placed aboard a CAT
C-46 without attracting the attention of the Hong Kong
customs authorities or any other British agencies.

Cox and Rosholt departed for Kweilin, at the same
time arranging to have Pai apprised of their impending
arrival. They were again met at the airfield by Lee and
his staff, accompanied by a dilapidated but still
operable truck. The two Americans were startled to see
their luggage, including the wicker baskets, thrown on
the truck, which then drove off with a load of coolies.
You can imagine the mental state of Cox and Rosholt at
that moment. Dispensing with formalities as rapidly as
possible, they entered the sedan with Lee and two other
officers and took off. On arrival at Pai's headquarters,
they were overjoyed to see their luggage, complete with
wicker baskets, sitting outside the door. It was
explained to Pai that the two Americans had been very

34

much impressed with his determination, his ability,
and the status of his forces. They had communicated
these impressions to various wealthy persons in the
U.S. who felt great friendship for Free China. These
persons had volunteered assistance which, at the
moment, could only be in the form of money. The two
Americans had, therefore, come to bring him a con-
siderable amount of cash which they were sure would be
used wisely and well, both on behalf of his troops and
for whatever local purchases might be feasible.

They requested that Pai designate officers to
count the funds with them, since they in turn had an
obligation to furnish proper receipting of funds that
they had transferred to the principals who had provided
the funds. Pai designated Lee as his representative.
The funds were thereupon counted and Pai receipted for
them. Pai assured the Americans that the money would

have a very beneficial effect on the morale of his

. 31/

troops . —

31. It has been noted that various Headquarters
reports of this payment to General Pai have shown dis-
crepancies both as to the kind of currency paid and the
amount. Several memos state payment was made in silver
dollars, while others confused UK dollars with U.S.
dollars .

E T

Again it was agreed that Rosholt would remain with
Pai for several days while Cox returned to Hong Kong to
report the transfer of funds, to begin planning for
similar operations in other areas, and to initiate
action on other activities

Headquarters was informed that delivery had been
made, and Pai's receipt for the funds was sent in by
pouch.

Rosholt and Cox continued to alternate their visits

to Pai's headquarters, spending a day or two each time.

These visits were helpful to his morale as the situation

was steadily deteriorating. On 26 October 1949, Cox

32/

reports Pai's situation as he saw it.

"I feel that cables have fairly well
covered our course with General Pai and our
plans for immediate aid. I would like to
caution against paying too much attention to
newspaper reports as to conditions at his
front, and to discount the importance of his
possible withdrawal from Kweilin. I am much
more worried that Pai will try to hold
Kweilin too long, in order to justify the aid
he is expecting, and that he will have some
of his forces pretty badly cut up. His
position at Kweilin is tenable only so long
as his right flank holds against the Commie
forces coming westward along the West River
from Canton. Prior to the time of my visit,’
responsibility for the flank protection had
been delegated to the troops now evacuating
from Canton. The Generalissimo had suddenly
pulled two of his armies from the mainland to

36

Formosa. Pai had to rush two of his main
front armies to the South to protect his
flank and unless they arrive in time and
can stop the Reds, Pai must pull back to
Liuchow. The Red threat South from the
West pincer of a possible double envolve-
ment has been turned back by Pai's troops.
There is little doubt Pai is faced with an
all-out effort to destroy him. His planning
against this includes guerrilla warfare,
stay behind groups, scorched earth policy and
CA attacks on supply routes. If the Commies
get too overextended he may be able to do a
lot of damage to them."

37

On Wednesday, 23 November 1949, the day before
Thanksgiving, Cox made another visit to Pai. While
en route he was called forward to the cockpit by the
pilot, who pointed below to a massive crossing of the
West River. There were two almost solid lines of
small craft. Those moving from north to south were
full of troops. The empty boats were moving from south
to north to pick up new loads. It was almost certain
that the troops involved were Communists, not part of
Pai's armies. The place was roughly in the area of
Wuchow, which was about half way between Canton and the
Kweilin-Liuchow axis.

By that time, Pai had anticipated that he would
have to pull back from Kweilin, and his headquarters
would then be established at Liuchow. Immediately' on
landing, Cox told Pai about what had been seen, and the
exact location was pinpointed on the map. Cox returned
to Hong Kong on a Lutheran Mission plane on 24 November.

During the night of 24-25 November Liuchow fell to
the Communists, and Pai once again had to pull back.

He established his headquarters at Nanning. During "the
week after Thanksgiving, a delegation of U.S. Senators
and Congressmen, including Senator William Knowland of

38

California, visited Hong Kong on a tour of the Far
East. Senator Knowland wished to go upcountry. While
other members of the party remained in Hong Kong, CAT
flew Knowland first to Chungking to visit the President
and Premier, and on the way back stopped off at Nanning
for discussions with Pai . After leaving Nanning,
Knowland insisted on being flown over Liuchow so that
he could see what the Communist-occupied ground looked
like. He made a most favorable impression on Chinese
and Americans alike.

Relentless Communist pressure finally forced Pai to

break up his army. Most of his troops fled south to

French Indochina where they were peacefully integrated;

many established agrarian communities of their own

where they grew their own food and existed without

33 /

causing trouble for the French authorities. General

Pai, himself, and a few of his troops were able to make
their way to Hainan Island where, of course, he had no
army and, therefore, no influence. He returned to
Taiwan and, as was customary, the Generalissimo
appointed him to a high-sounding strategic planning
board, granting him an allowance that permitted him -to
maintain a home and a small retinue of staff officers.
Cox visited him on a number of occasions, always to be

39

S E C ikE T

warmly received, and long discussions were held with
him as to the future. It seemed apparent that he had
not had time to really build up any kind of staybehind
net, although he did maintain some form of contact with
friends in Kwangsi.

After liaison had been established with Pai,
attention was paid to other areas where assistance
might be given the anti-Communist cause. Southeastern
China had to be written off, because it was under the
control of the Generalissimo; he was rapidly removing
its armies to Formosa. There seemed to be no way to
bolster effective resistance. Two possibilities
remained, however: Hainan Island and the Province of

Yunnan. On Hainan Island two actions remained to be
taken. The first was to encourage the governor of the
island, General Chen Chi-tang, to continue to resist a
Communist takeover of the island. He had been joined
by General Hsieh Yo, who had pulled back to Hainan from
the Canton area and still had some of his troops with
him. 'The bulk of his forces had been transferred to
Taiwan, Secondly, it had been the original intention
to establish a main CAT base in the
southern end of Hainan Island where there was an air-
field and a harbor at Sanya and Yulin. This airfield
could be used for air support of the mainland. The

40

port offered a ready facility for transshipping supplies
brought in for forces on the mainland. It was decided,
therefore, that at the first opportunity Rosholt, who
knew Hsieh Yo very well, would visit Hainan Island for
discussions with Chen Chi-tang and Hsieh Yo to determine
their intentions with regard to holding the island.

In Yunnan, a mountainous province which normally
would be considered quite defensible and which had
proved to be so in World War II, rumors had been rife
that Governor. Lu Han (who had assumed this post shortly
after World War II when the Generalissimo had forced
the removal of Governor Lung Yun) would turn over the
province to the Communists. The main CAT engineering
base was located at Kunming, as chance would have it,
at a major installation that had been named Chennault
Airfield. Any sudden defection to the Communists would
mean a very considerable loss of material and aircraft,
and the possible capture of a considerable number of
personnel, many of whom were Americans with families.

It was decided that, initially at least, Rosholt could
handle the situation at Hainan Island, and Cox would
go to Kunming for conversations with Lu Han. •

Cox visitdd Lu Han in Kunming in mid-November,
accompanied by P.Y. Shu, for many years Chennault's

trusted interpreter. He carried with him
which Headquarters had authorized him to use at his
discretion, since time was so obviously short, and
communications had not been established at that time
except from Hong Kong .

He found that Kunming had not changed greatly from
when he had last seen it in 1945 except, of course, it
was a little shabbier, a little dirtier, a little more
depressing. Lung Yun had amassed a tremendous fortune
during World War II, largely by pilfering tires and
jeeps, and constantly tapping the oil line running
across the hump from Burma into China. At one time
during World War II he had such a large stock of jeep
tires that he issued an edict that all ox carts must
have jeep tires on their wooden wheels; in 1949 one
could still see ox carts with bits and pieces of tires
clinging to the wheels.

Cox's reception by Governor Lu Han was gracious.
After the usual exchange of pleasant conversation, Lu
was queried as to what he thought of the future of
Yunnan in view of the rapid ChiCom advances. Could it
be defended, and would he defend it? Just how did' he
view the situation? The Governor replied at length
and with considerable honesty. He admitted that the

natural geography of the province made defense quite
possible. However, he pointed out that he had no
sources of supply or of funds, and that he could not
long withstand a siege without assistance. There were
indications also that he, in effect, was saying that
since he could not hold out forever, the best thing to
do was to reach an accommodation with the Communists •
which would permit him to survive with at least some
prestige. He was told that a number of wealthy and
influential Americans were vitally interested in the
continued resistance of the Chinese people against the
ChiComs, and th4t the writer had come prepared to offer
at least a token of support that might be of encourage-
ment. He replied that he would very much appreciate any
support that he might be given, but that he recognized
the practical impossibility of such support being of
the type and amount that might permit him to continue
for very long. At that point Cox turned over to him
asking only for a receipt which could be
handed to the people who had given the support, and
hoping he would resist as long as possible. No com-
ment was made on the fate of the CAT facilities *and"
personnel beyond the passing mention that a tangible
evidence of the good faith of the Governor was the mere

S E C x E T

fact that this facility and the personnel had remained.
The Governor said that he very much appreciated that
faith; Cox was sure that Lu knew he was being asked
that, if the time came when he felt he had to reach an
accommodation, he would insure that American personnel
of CAT would not be unduly endangered.

On 16 December 1949, Lu Han hade his decision and
the airfield, the CAT facility, and personnel were
seized by what had formerly been Nationalist Government
troops, Lu Han then, hastily living up to his implied
pledge, rushed to the airfield with his personal body-
guard, secured the release of the aircraft and CAT
personnel. These people were able to evacuate together
with other Americans in Kunming, including the vice
consul, and with as much equipment as they could carry
in the space available on the aircraft.

The price of may seem high to a casual

reader. However, in terms of aircraft, equipment, and
much more important, personnel, it was a low price to
pay for getting out of Kunming as well as was accom-
plished. The Americans alone could have been held for
ransom of many times the amount paid to Lu Han. *

In the meantime, Rosholt had gone to Hoi-Hou, the
capital of Hainan Island, in order to talk with Chen

\44

SECRET

S E

E T

Chi-tang and Hsieh Yo. Chen, a rather elderly man, had
not had too much in the way of combat military experience
He reiterated his determination to hold the island and
was interested in what Rosholt had to tell him about
plans to establish a CAT base in the southern part of
the island and also the possibility of developing some
of the island's natural resources, which were con-
sidered to be plentiful.

Rosholt also talked with Hsieh Yo and found that
although his desire and determination were still high
he had not been able to maintain control of sufficient
troops to be able to exert much voice in planning for
the defense of the island.

Upon Rosholt 's return to Hong Kong, he and Cox
discussed what might be the most reasonable course of
action and agreed that a sum

should be paid to Chen Chi-tang in order to stiffen
his will to resist, and that at least a token payment
should be made to Hsieh Yo in the hopeful event that
at some date he might be able to exercise a greater
voice in establishing the defenses of the island.
Recommendations to this effect were approved by’
Headquarters .

45

S E CNR E T

S E\C R E T

Hong Kong

At about this time, Cox and Rosholt were joined in

and Cox

were very old friends, having served throughout the war

together, and arrival was indeed very welcome.

[

would go to Hainan Island

It was decided that

to meet both Chen Chi-tang and Hsieh Yo, and to make

of the island to inspect the airbase at Sanya and Yulin.
In the meantime, CAT engineering personnel had been
preparing engineering studies on the nature and cost
of facilities that might be required if an operational
base were to be established there. However, the rapid
turn of events and the swift advances of the ChiComs,
the dissolution of Pai’s armies, and the defection of
Lu Han to the ChiComs focused attention, both in Head-
quarters and in the field, on a re-evaluation of the
desirability of establishing the proposed Hainan base.

It was recognized that if a decision was made to move
to an established base in Taiwan, it would inevitably
put the Generalissimo in a better position to oversee
Agency operations. As a practical matter, the deci-

sion had to be made to abandon the idea of a Hainan

S E

RET

base and, instead, to seek base facilities on Taiwan
under the best possible terms that could be arranged
with the ChiNat Government.

Negotiations for establishing a base on Formosa
proved to be less difficult than had been expected.
Permission was granted to bring the LST and the supply
barge, "The Buddha", to Kaioshung, a good port in
southern Taiwan some twenty or thirty miles from the
Tainan Airfield, a major Chinese Air Force base in
good condition. Warehousing space was also allocated
to CAT at Tainan. As rapidly as possible, the move
was made. The shops already installed on the LST
remained there, and other facilities were established
at Tainan. Although a considerable amount of trucking
back and forth between the port and the airfield was
required, it did not take too long to establish the
operational base.

The last days on the mainland were marked by a
series of unfortunate incidents. The area around
Mengtze, in the southeastern part of Yunnan Province,
contained valuable tin deposits, and every effort was
made to remove as much of the tin as could be mined 'at
the last minute to ports of Indochina, either Hanoi or
Haiphong. Contracts were made with CAT for the airlift

RET

of the tin ingots. On 8 November 1949, a CAT C-46
lost an engine on takeoff and crashed. The two
Chinese crew members, a co-pilot and radio operator,
parachuted safely. One made his way back to CAT, the
other was never heard from again. The pilot, Captain
Norman Jones, went down with the aircraft and was
killed.

On 6 December 1949, a CAT C-46 piloted by Captain
James B. '’Earthquake McGoon" McGovern, while en route
from Hong Kong to Kunming, encountered unfavorable
weather conditions, lost communication with Kunming
and wandered around lost until almost out of fuel.

The pilot successfully made a belly landing on a sand
strip in the middle of a small river, with no injuries
to passengers or crew. However, they were all quickly
rounded up by the Chinese Communists.

McGovern, a fabulous character of whom more will
be said later, weighed somewhere in the vicinity of 300
pounds and was a boisterous character, known throughout
the entire Far East. The ChiComs began to march the
crew and passengers (McGovern was the only American) to
internment in a prison. With his tremendous wei'ght'and
possibly a lack of good physical condition, McGovern
refused to walk; and, probably because of his size and

48

his determination, the ChiComs finally had him carried
in a portable sedan by coolies. As the story goes,
McGovern was such a holy terror to his Chinese captors,
demanding extra food, better food, women on occasion,
etc., that after six months the ChiComs gave up and
released him. He crossed the Hong Kong-China border on
foot, heavily bearded and down to what was for him a
slim and trim 185 pounds. Other individuals captured
by the ChiComs were not so furtunate.

The tin airlift from Mengtze continued as long as
it was possible to fly in and out, but orders had been
given that ho American or any other CAT personnel would
remain overnight at Mengtze, always taking the last
plane out back to Haiphong. On the evening of
15 January 1950, Captain Robert Buol, who was in
charge of the tin lift, having been assured by the
ChiNat Generals that the ChiComs were still far away,
decided to remain overnight against his standing
orders. The ChiComs moved in that night and Buol was
taken prisoner. As the first CAT C-46 came in on the
morning of the 16th of January, it encountered machine-
gun fire as it attempted to land. After making another
try, with the same reception, the plane returned to
Haiphong. Later in the day, another C-46 flew in and

S E C1E T

attempted to land and get Buol out. It too was met by
machinegun fire, and the co-pilot, ’’King George” Davis,
received a bullet in his leg. As luck would have it,
this particular pilot was a British citizen. He was
highly indignant over the fact that although the
British had just recently recognized the Chinese Com-
munist Government, and he was wearing a bright red tie,
he was the one hit by the bullet.

Buol was taken to Kunming where, although he was
treated quite well, he was held in prison until the
summer of 1955 . On his release he was given a thorough
physical examination and returned to the States. He and
his wife, Sue Buol, the long-time secretary of Chennault,
were invited to Washington for what they believed to be
extended debriefings. Cox met with them there at the
time and found that they had been almost completely
ignored, and that no real attempt had been made to
debrief the pilot. Buol was again given a thorough
physical examination, and seemed to be in good shape.

He spent a number of months with his wife on the West
Coast, appearing to be completely normal. He and his
wife wanted to return to CAT and decided to travel' "back
by way of Europe so that Buol could contact two or
three of the Frenchmen who had been imprisoned with

50

him in Kunming. He preceded his wife, Sue, by a few
days. Mrs. Buol was at dinner with the Coxes at their
home in Washington when word was received that Buol had
died very suddenly while taking a hot bath in a small
town in the south of Prance. An inquest was ordered
held in view of the peculiar circumstances of his sudden
death, and it was determined that the capillaries in
his lungs had suddenly collapsed and that he had died
from excessive flooding of blood into the lungs. It
was Cox's unprofessional opinion that Buol should have
been more carefully instructed to effect a gradual
change of diet after living on a rice diet for more than
five years, and that the sudden change to rich American
types of food probably had proved more than his system
could assimilate.

In the meantime, back at Headquarters the China
operations were, at least as of 25 November, still con-
sidered to be worthwhile and worth continuing. In a
memorandum of 25 November 1949, Mr. Wisner reported to
his principal staff officers on his presentation of the
status report on China given in Mr. Webb's office at
State. Present were Mr. Butterworth, Mr. Joyce,- and

Mr. Sheppard from State; General John Magruder and

35/

Mr. Halaby from Defense; the DCI and Mr. Wisner.

51

S E^bsR E T

Mr. Wisner reported that the majority of the people
present seemed very pleased with the way things were
going although Mr. Butterworth, though not entirely
opposed, did not seem to be too happy.

The possible use of Haiphong as a base was dis-
cussed at length. It was pointed out that the French
might be willing to permit this as long as the Com-
munists did not hold the contiguous areas such as
Yunnan, but that they might swing the other way just
at the time when the base was most needed. There was a
discussion also of the recognition of Communist China.
It was thought that the Indians would recognize the
ChiCom Government very quickly and would be followed by
the British.

52

s E T

During the early weeks of December, Mr. Wisner

attended a high-level meeting with State officials to

discuss the future insofar as China was concerned. As

a result of these meetings, he wrote a memorandum to

his principal staff officers on 19 December 1949,

advising them that they should be prepared for a change

in policy guidance on OPC operations in China which

would probably limit any further support of resistance

or guerrillas but which would probably permit the con-

38/

tinuation of propaganda operations. —

On 31 December 1949, Mr. Wisner received a memo-
randum signed by a Mr. Robert G. Hooker on behalf of
39/

Mr. Kennan. — The memorandum made reference to the

situation arising from the collapse of organized
Nationalist military resistance on the mainland. It
stated that commitments on the mainland should be with-
drawn as rapidly as possible since there was no con-
fidence that any guerrilla operations would produce
results commensurate with the risk and political
hazards in preparing and following such a course. It
was deemed unwise for additional Americans to procee'd
to the Far East in connection with this operation, and
directed that those Americans now there should be

53

precarious situation in French Indochina, the latter
territory should not be used as a base for covert
operations directed against China.

The Wisner memorandum did leave open the possi-
bility of maintaining effective contact with guerrilla
or resistance leaders for the purpose of intelligence
or for providing estimates in the future for such
situations as might develop.

He further noted that the highest
degree of expert political thought and ideological
advice would be necessary.

A digest of this State Department policy guidance
was cabled to Hong Kong for Cox.

The ChiComs were not apparently in any great rush
to seize Hainan Island. Chen Chi-tang and his forces’
remained there until April. At that time, the ChiComs
crossed the narrow channel and took the island,

54

S E T

practically without opposition. As many Nationalist
troops as possible were evacuated from the south of the
island to Taiwan. So ended the last vestige of Nation-
alist control over the mainland with their only remain-
ing territory the island of Taiwan and a few offshore
islands .

It might be appropriate

at this time to note the failures and some of the
accomplishments of this particular phase.

It was true that not enough time was gained by

supporting the mainland forces to establish adequate
intelligence!

which had been one of

the primary purposes of this phase of the project. By
force of circumstances, furthermore,

CAT

operations had to be moved to Taiwan where
they were subject to more control by the Nationalist
Government than was desirable. In point of fact, the

which was

perfectly logical since the main CAT headquarters,
particularly insofar as finances were concerned, stayed
in Hong Kong. There were a number of factors on ’the'

plus side, however. First of all,r

Secondly, excellent

relationships had been established

but for reasons of security and convenience it was much
more desirable! — -

At the time _ J

discussions were held between

OPC and 0S0|

, : AJsjL

56

S E C x E T

In point of fact, in the field 0S0 and OPC found
no difficulty or incompatibility in pursuing their
respective interests. On many occasions they assisted
each other in carrying out operations. The new State
policy toward operations in China as given to OPC at
the end of December 1949 permitted continuing contact
with resistance and guerrilla groups on the mainland
for intelligence purposes, and to take advantage of
situations that might develop.

There were occasions when OSO had

opportunities, without the funds, at which time OPC
could be of assistance. There were other occasions
when OPC had the opportunity but not the policy, and
then OSO could assist on the grounds that it was an
intelligence operation. There, was more than enough
room and work for all, and a spirit of harmonious co-
operation rapidly developed between elements in -the -
field.

s ex: ret

This completes the story of the attempt to support
the mainland resistance. Succeeding sections of this
paper will cover earlier days in order to recount some
of the other activities which occupied the attention of
the OPC Mission,

R T? 'T'

•M i

S E C\E T

IV. CAT SUPPORT OF CIA ACTIVITIES

This section of the paper will describe the support
provided to CIA activities

by

the CAT Airlines. In general, air support will not be
included, except in a few instances where it was required
to move material or personnel for Agency purposes.

It should be recognized that an unusual situation
prevailed in the Far East from earl y 1949 to a pp roxi -
mately 1955. L,

support

who has administrative and clerical

and who is able to main-

tain complete records and to furnish required monthly
reports, and the like. He can conduct operations with
a tight control (particularly insofar as records are
concerned), something that cannot be done j

Many of the activities that will be
listed j.n this section of the paper would in most
instances be controlled and directed!

When Cox proceeded to the field in October of 1949

there were no OPC Stations as such in the Far East area.

All records had to be maintained

since the writer, informally designated as

Chief of

Mission, CAT, had to operate without the possibility of
maintaining records of any sort. A great number of

problems and difficulties arose, especially with regard
to reporting and administrative records.

Such a situation is rare and probably no longer
exists. As a matter of history and in the event that
such a requirement should arise in the future, however,
the material presented in this section may be of value.

Propaganda

Cox did not receive his Letter of Instructions
until 3 October 1949, the date of his departure. It
was stipulated therein that the instructions be com-
mitted to memory, since the paper could not be carried
to the field. It was also stipulated that, prior to
departure, the writer should consult with representatives
of all of the program branches of CPP/OPC to determine:
a. What special interests, problems, or
questions they might have with respect to the
area;

60

SEMET

b. What specific instructions they wished
to convey |

in their

particular field of responsibility.

In view of the time element, consultation with the
various branches necessarily had to be limited to
perhaps a half-hour for each branch.

Cox met with

and spent half an hour

with them. The discussion had to be general in nature.
It was indicated that

would probably be coming

to the field at a later date to carry out propaganda

responsibilities. The Letter of Instructions contained

41/

no specific provisions with regard to propaganda.

After the fall of the mainland, and after Cox had

returned to the field, he was given a supplementary

42/

Letter of Instructions which contained specific in-

structions

and any auxiliary psychological warfare

projects

which concerned itself with instructions and budgeting
for propaganda and psychological activities. It stated
that

who had already arrived in the field-

earlier in the year

for that program. The statement was made that Cox was

63L

s e\r E T

SECRET

to bear in mind the Department of State directive that
dependence upon and cooperation with the Nationalist
Government in the implementation of the propaganda
program was to be held to a minimum. Also, Cox was to
be guided by State and NSC policy directives, but all
U.S. action was to be such as to encourage initiative by
the no n~ Communist forces, and to encourage action which
would appear to the inhabitants of the area as com-
patible with their national interests and worthy of
support. Activity should be directed at the negation
and eradication of Soviet influence in China, and the
diffusion and diversion of Chinese Communism to the
point where it would be replaced by Chinese Nationalism
and some form of indigenous democracy.

At this point a few words might be in order with

regard to He was of slight build, but with' a

tremendous amount of drive and energy. He was very
strongly motivated against Communism, almost to the
point of fanaticism. He was careless of dress and
careless (perhaps sloppy would be the proper word) in
his accountings and his reportings to Cox. He worked
at a tremendous tempo and, although he was often at the
Correspondents Club, it was obvious that he was much
more concerned with his job than the other correspondents

62

S T

S E IJ R E T

in the area who were procuring most of their information
through British Hong Kong offices, the American Consulate
General, etc., and were not particularly energetic in
active contact with indigenous Chinese elements.

worked with great energy at trying to contact large
numbers of refugees as soon as possible after they
crossed the Hong Kong border .

As a result of these interviews,;
book entitled

wrote a

This book

received considerable acceptance,

It was unfortunate that before

came to the

field arrangements had not been made between Head-'

: |

quarters and

regarding any future publications ,

At a later date friction apparently developed between
and Headquarters elements, since Headquarters

felt that he was a full-time employee during the period
in which he gathered this material and wrote the book,

and that at least a portion of the royalties received

from the sale of the book should go to Headquarters,

rather than all being kept

l 3

SECRET

effort came through the good services
who introduced him to Hsieh Ch'eng-ping.

Hsieh, at the time approximately 45 years old, was
well educated, having received his Bachelor of Arts
Degree in the History Department of the National Central
University in 1928; later, after attending Michigan
University in 1928-1929, he received his Master of Arts
in Political Science and History at Columbia University.
He was strongly anti-Communist and not pro-KMT. He was
active in various so-called Third Force movements and,
at that particular time, was General Manager of the
"Freedom Press'.', a publication • issued in Hong Kong.
Previously he had been a member of the Young China
Party of the Democratic League and of the National
Salvation Association in Shanghai. and Hsieh

cooperated very well and produced a number of effective
publications. •

On 3 October 1952, having been recalled to the
States, reviewed his relationship with Hsieh in

64

s"e' v 6vR E T

s eN: ret

The Chinese Communists were extremely active in
Hong Kong. They controlled a number of newspapers,
including the one with the largest circulation. They
also published a number of magazines, booklets,
pamphlets, comic books, etc. Hsieh's activities in
the anti-Communist propaganda field were attended by
constant danger of retaliation from the Communist '
elements in Hong Kong. On one occasion he and his
wife and children, en route ,o a movie, were set upon

by a political gang. Hsieh was badly beaten up and his
wife suffered a dislocated jaw. On another occasion
the British political police raided Hsieh's home

They

found the money on his premises. He told them, as he
had told them before, that his rich in-laws in San
Francisco were the source.

great pressure was put on
Hsieh by the British authorities. Word was received
that the British were considering deporting Hsieh,
possibly to Red China. This would have been disastrous
for him and would have wrecked the considerable PW effort
which he was conducting. Up to that time he had kept
his own name out of his publications and had not con-
tacted foreign correspondents personally, mainly for

I

he then put

reasons of safety.

his true name on the masthead of

and made it a point to give a lunch to foreign corre-
spondents and to develop contacts with them. This would
have assured widespread publicity abroad if he had been
deported, j British police were

very annoyed when Hsieh took this action.

69

S E E T

S E

E T

A CAT pilot, jhad been stationed

for a considerable period of time in northwest China.
Although not considered a top-flight pilot, he was .con-
ducting small plane operations throughout the area. He
was intelligent and politically rather astute,

70

s

by representatives of the State Department and the mili-
tary attaches.

and evidenced an interest in leaving CAT and entering

the publications field in Hong Kong.

At that time a publication that was failing, but

which owned printing facilities, was available for pur-
chase .

in the purchase of this facility, in order to put out a

monthly magazine! was

told that a Headquarters decision would be asked. A
cable requesting a decision was promptly dispatched.

71

S E

E T

amount of distribution. It is questionable, however,
whether at that time Headquarters would have approved

investment in a propaganda activity that was so obvious-
ly American-supported.

Mention has been made previously of the supplemen-
tary Letter of Instructions furnished Cox on 10 March

1950. During the process of coordinating the draft

Letter ,

Acting Chief for

for OPC, registered his nonconcurrence on the grounds
that the letter was so vague as to be entirely meaningless
stated that if Cox were to be given guidance
with respect to the PW "line," the amount of detail would

have to be much greater than that contained in the Letter
of Instructions, jvas quite correct. Although Cox

was briefed in detail at Headquarters as to the policy

line on propaganda as of that momer. , very little addi-

72

tional guidance was ever furnished to the field. When the
Korean War began in June 1950, certain changes in the prop
aganda line were in order; certainly they would have been
even more in order when the Chinese Communists entered the
conflict. In those years the kind of propaganda guidance
currently furnished the field did not exist. In some re-
spects this was not entirely bad since .there were people
in Hong Kong, both Chinese and American, who were constant'
ly contacted in order to discuss in general terms as to
what might be the most effective propaganda line to take.

and Hsieh were particularly close, and both

were able to influence Hsieh consid-

erably in the content of the publications. There is littl<
question, from the Headquarters control point of view, how-
ever, that ] followed his own line. The chances are,

having the personality he does, that he would have followe*
his own line of reasoning in any case. However, since sue!
guidance did not exist at the time, this can be only a

surmise

Several months after

arrival in the field,

'came to Hong Kong, indicating that the basic pur-

pose of his visit was to discuss
the most suitable location

Cox arranged for^

S E\C RET

and problems of distribution.

One incident in the propaganda effort, which now
really seems ludicrous, was extremely irritating at the
time .

75

propaganda campaigns described above would be difficult

to make. _ _ _ __

was probably more productive than any of
the other efforts. Initially, the various projects under-
taken with Hsieh Ch'eng Ping did appear to be worthwhile
and to be having some effect on the local Chinese commun-
ity.

however, the effectiveness of Hsieh’ s efforts appeared to
be gradually decreasing.

The average Chinese in Hong Kong was neither pro-
Communist nor pro-KMT. He simply preferred to live in
the Free World, did not wish to live under Communist or
KMT control, and was unwilling to take part in activities
against either for fear of retaliation, not only from the
two extremes but also from the Hong Kong Government which
was trying to walk a very tight rope to avoid Communist
action against the colony.

The Chinese Communists controlled most of the Chinese
economy in Hong Kong and, of course, the trade back and
forth across the border was considerable. They controlled
the Bank of China, which was housed in an imposing edifice
carefully constructed to be slightly taller than the^larg-
est British-controlled office building on Victoria Island.
Their control over propaganda media wa§ very considerable ;
they were prepared to take action against opposition in

77

Hong Kong.

The Chinese Nationalists had numerous agents in Hong
Kong, but had little popular support for organized public
activities directed against the Communists.

Another probable cause for. the decreasing effective-
ness of the

He was not replaced by any officer

of similar experience and energy. Despite his short-

comings , the goo

cC

during the time he was in Hong Kong.

far overshadowed the bad
*

The Korean War

With the fall of mainland China, to all intents and
purposes at the beginning of the year 1950, CAT operations
became severely restricted and the flight time fell off to

*At a much later date Cox accidentally encountered
in Washington and, although aware that Headquarters dis-
couraged any further contact with him, could not very well
refuse an invitation to lunch at his apartment. Cox noted

that the apartment was completely flooded with_ Banuahleis

and tra c ts o f an extremely rightwing nature .

had testified before the House Un-American

Activities Committee in 1954. ) Although consideration was

given to interviewing

on his Hong Kong activities,

it was decided that this might only serve to re-open -old

wounds and possibly result in damaging action by[
with regard to his Agency activities. Therefore no inter-
view was arranged.

SECRET

approximately 400 flying hours per month. For reasons of
economy, it was necessary to release a substantial number
of personnel, particularly affecting the number of flight
crews available. All American personnel, however, were
told to regard themselves as on leave without pay and were
requested to keep CAT advised of their whereabouts so that
they could be quickly contacted in the event that CAT oper!
tions expanded.

During the period prior to the beginning of the Koreai
conflict, the OPC representatives were kepi

busy establishing propaganda activities, developing con-
tacts as possible sources for intelligence and later guer-
rilla action on the mainland, and following out other
actions as requested and approved by Headquarters. All
during this period the CNAC/CATC litigation was being
pursued in the Hong Kong courts.

Early on the morning of 25 June 1950 (Far East time),
word was received in Hong Kong that the North Koreans had
begun to invade South Korea. The writer met with Chennault
at Kai-tak Airport in Hong Kong at 7 a.m., and a cable signe
by Chennault was sent to General Douglas MacArthur offering
immediately the full use of all CAT facilities against the
North Koreans. General MacArthur replied several days
later that the offer was appreciated, but adequate airlift
was on hand to cope with the situation.

79

was hurriedl:

During this period
beefed up. It originally had consisted of a Chief of Sta-
tion, now deceased, one administrative

assistant/secretary and a cleared consultant. Immediately

after the start of the conflict

in touch with them to insure that they understood the air
support capability that CAT had to offer. They had to
start from scratch. Initially, therefore, they had little
need for air support .

In the first week of September 1950, Willauer and
Cox were asked to come to Tokyo as rapidly as possible.

En route to Tokyo from Hong Kong, they picked up Mr. C.
Joseph Rosbert, the Director of Operations, and Capt.
Robert E. Rousselot, the chief pilot, in Taipei. Senior
officers of the Far East Air Force (FEAF) told Willauer
that they urgently required every bit of airlift CAT
could provide. The urgency was so great that they told
him to prepare an estimate on which a contract could be
based as. soon as possible and, if necessary, it would be
readjusted at a later date.

FEAF advised that they would provide fuel, that the

S E

E T

CAT airlift would be based at Tachikawa (a FEAF air base) ,
that facilities for CAT crews, including PX and Commissar]
facilities, would be provided by the Air Force, but that
they could not furnish billeting at Tachikawa. In coming
up with an estimate of cost per flying hour, the fact that
fuel would be furnished by the Air Force should be taken
into account. They also indicated that spare parts, as
required and if available, would be provided from Air
Force stocks and that every assistance possible would
be given in the maintenance of the aircraft.

After some hurried calculations, to a certain extent
taking figures out of the air but based on CAT experience,
a contract was drawn up providing for reimbursement at

per flying hour. The contract also contained provi-
sions for indemnification for loss. The Air Force indi-
cated that the contract was acceptable to them, and that
they could use every bit of airlift that was made availabl
In the meantime, cables had gone out to all the
air crews and some of the American maintenance person-
nel who had been placed on leave without pay to ascer-
tain whether they were still available and willing
to return to the Far East, They were requested to re-
ply either to the CAT Washington office or directly,
to CAT in Taipei. A surprising number of personnel

quickly responded. Within less than two months CAT had
rebuilt its capabilities from the 400 flying hours per
month noted previously to close to 4,000 hours per month.

It was somewhat disturbing to CAT personnel involved
when the Air Force quietly advised that things would go
more smoothly all around if Chennault did not come to
Tokyo, at least at that time. It was apparent that
General MacArthur did not want to welcome any other
stars into his firmament.

This Air Force contract, which was known as
BOOKLIFT, in addition to being a godsend for rebuild-
ing the operational capability of CAT,

From time to time, the contract was re-negotiated
with the Air Force auditors. This presented certain
difficulties in that the auditors were not cleared,
were hot aware of the true ownership of the airline,
and were not briefed on the flights in support of OPC
operations. However, on such OPC support flights, OPC
itself was billed rather than the Air Force so that
activity did not unnecessarily complicate the picture.

bulk, were flown by the USAF, but on a number of
occasions, particularly after the cease-fire, CAT was
called upon to operate also.

It was evident very early in the BOOKLIFT oper- '
ation that there would be increasing difficulties with
the Japanese Government over CAT flying aircraft with
Chinese Nationalist markings and with personnel carried
as employees of a Chinese company. Very quickly a
Delaware corporation was established, planes were
registered as American-certificated aircraft, and the
personnel assigned to Tachikawa, including the flight
crews, were ostensibly picked up by this new American
corporation. Every effort was made to keep both
companies as separate as possible, both on the books
and in their activities, so as to run a minimum risk of
interference by both the Japanese Government and pos-
sibly by the Chinese Nationalist Government . The latter
could conceivably complain that the transfer of the
aircraft had been made without approval of the Chinese
Civil Aviation authorities and the Minister of Com-
munications. It was a device which probably would not
have stood up if either country had chosen to make it
an issue. The Japanese Government, still under the
control of Supreme Commander Allied Pacific (SCAP) ,

T

was not in a position really to make any trouble, and
the Chinese Nationalist Government did not elect to
raise any unnecessary objections.

The FEAF engineering and maintenance facilities
were very badly overloaded. For this reason CAT invited
the Air Force to send an inspection team to Tainan to
inspect the CAT engineering and maintenance facilities.
The team was quite impressed and made a favorable report.
An initial contract for engineering overhaul was worked
out with the Air Force and, as the CAT output measured
up in all respects to Air Force requirements and
standards, the volume of business generated through the
engineering and maintenance facilities at Tainan greatly
expanded and became an important factor in the financial
status of the airline.

In mid-September the UN forces began to move north-
ward and Pyong-Yang, the North Korean capital, was taken
on 20 October. The advance northward continued and on
20 November the U.S. 7th Division reached the Manchurian
border .

On 26 November, 200,000 Chinese Communist "volun-
teers" crossed the Yalu River to launch a counteT-
attaclc. The Chinese caught the UN forces overextended
and they were forced to fall back, suffering heavy

S

losses on both sides of the Peninsula.

Shortly after the entry of the Chinese Communists
into the war, Col. Richard G. Stilwell, DC/FE, arrived
in the Far East on a tour of the various OPC instal-
lations. Cox accompanied Stilwell to Seoul and, after
spending the night the

two departed in a jeep along the highway running north
from that city. Colonel Stilwell was anxious, if
possible, to call on Major General Garrison H. Davidson
who commanded the 7th Division. The command post was
located without too much trouble, as it was just a
short distance off the main highway. As an illustra-
tion of how exhausted the troops were because of their
rapid withdrawal south from the Yalu (they were under
constant flank assault and heavy pressure by the ChiComs
who were infiltrating far down into South Korea), entry
was made into the command post without challenge. The
General's command van was located, and much to the
General's surprise, Stilwell and Cox walked in and woke
him up .

After a briefing, Stilwell and Cox returned to
Seoul where they were advised by Captain Rousselot
that a CAT aircraft had had engine trouble at Hungnam,
the major port of embarkation for the troops and

SEC

T

civilians who were being evacuated from the east coast
of Korea. It was determined that the plane could not
be repaired in time, so it was stripped and burned.

In January 1951 Cox was called back to Headquarters
and informed by Mr. Wisner that OPC wanted to move forwar
as rapidly as possible on three projects. These were:

S E''€L R E T

The reason for pushing as rapidly as possible on
these projects was, of course, to force the Chinese Com-
munists to drain forces from the Korean conflict in the
north in order to meet threats elsewhere.

A start had been made on all three projects but
there had been no implementation of actual operations
on an approach had been made to the General-

issimo advising that wealthy American interests were
prepared to assist by providing training instructors
for the development of a ChiNat unconventional warfare
capability (Tab C, Volume III).

the OPC representatives in CAT had

been working with Third Force leaders, at that time
largely for the procurement of intelligence since no
operations had yet been approved (Tab D, Volume III).

Cox was informed that he would be given briefings
on the spot

and that
kith

he and Chennault should begin to work
the ChiNat Government, making at least preliminary
arrangements for billeting Americans, for training
areas, warehouses, etc., pending the arrival of U.S.

SS

s"e>SJR E T

personnel who would be assigned full time to the task.
Chinese volunteers

would have to be

found, recruited, cleared, and moved out of Hong Kong
to whatever training base might be established. A
Third Force political movement that had some credibility
and capability would have to be devised and developed.

Cox immediately returned by way of Europe and
South Asia,

For many

months thereafter almost continuous, travel was required,
first to get the projects going and then, after addi-
tional American personnel came to the field, turning
command of the project over to them but continuing in
a support role.

of separate historical papers. In order to avoid
unnecessary duplication, therefore, the tabs noted
above will concern themselves solely with the support
provided by CAT to the three projects.

Other

Many of the activities conducted under CAT cover

89

were highly specialized and can best be presented as
separate histories. In order to keep the first volume
of the history at a reasonable length, many of these
activities have been written up separately and will b'e
included in Volume III as annexes. The reader can then
choose his reading according to his interests. These
annexes include:

TAB I

TAB J

TAB K

TAB L

The Pickup Operation
An unsuccessful attempt to snatch
an Agency Chinese agent by a CAT
aircraft in Southern Manchuria.
Indochina - Limited Victory in 1953 -
Dien Bien Phu and Disaster in 1954
The provision by CAT, on a crash basis,
of pilots to operate C-119 aircraft
provided by the U.S. Air Force to
the French Air Force in Indochina.

The Cathay-Pacific (CPA) Incident
The shooting down of a Cathay-Pacific
aircraft by Chinese MiG's just south
of Hainan Island.

SECRET

CAT International and Domestic

Operations - Scheduled and Non-

scheduled

A description of the various routes
travelled by CAT together with a
report on some of their unscheduled

charter activities.

Engineering and Maintenance

m ‘ ***'

A description of how CAT handled their
complicated maintenance problems in the
face of numerous forced evacuations on

93

S E C\R E T

the mainland, with emphasis on the
utilization of an LST and a supply
barge .

TAB Q CAT - Personnel and Training

A brief account of the airline’s
hiring practices, training programs,
related pay scales, and incipient
labor problems.

V. CN AC- CATC LITIGATION 1949-1952

As the Chinese Communists steadily advanced during
the summer and fall of 1949, they made every effort to
secure defections from the three Chinese airlines, CAT,
the Chinese National Aviation Corporation (CNAC) and
the Central Air Transport Corporation (CATC) . CNAC was
80 percent owned by the Nationalist Chinese Government,
with Pan American Airways holding the remaining 20
percent . CATC was 100 percent owned by the Nationalist
Chinese Government. Any sizable defection from CAT
would, of course, have been a tremendous propaganda
victory for the Chinese Communists because of its
American ownership.

These attempts toward defection were well known
and every effort was made by the security department
of CAT to insure against them. In order to keep the
assets of the other two airlines from falling into the
hands of the Communists, the Nationalist Chinese
Government had ordered removed to Hong Kong all equip-
ment, assets, records, etc.

On 9 November 1949, 11 CNAC and CATC aircraft
took off from Kai-tak Airport in Hong Kong and
defected to Communist-held airports. At the same time
CAT received word that several aircraft located

upcountry on the mainland had also defected to the Com-
munists. Fortunately at that time, there was a con-
siderable number of CAT personnel in Hong Kong. They
were rushed out to the airport and by physical inter-
vention, including driving trucks on the runways,
further defections of aircraft were obstructed. The
Hong Kong police quickly restored order and froze all
of the CNAC and CATC assets in the Colony, pending a
legal decision as to who were the proper owners of the
assets .

Headquarters was asked to approve whatever OPC
actions might be required to deny the assets of the two
airlines to the Chinese Communists. Headquarters
replied that while every assistance should be given to
Chennault and Willauer in order to make effective such
a denial, it was not felt that as of that time such
actions were proper undertakings fox OPC.

Chennault and Willauer were almost immediately
contacted by Generalissimo Chiang Kai-shek, who
requested that they give every assistance in denying
the Hong Kong assets to the Communists, On 16 November
Ango Tai, an employee of CATC who had remained loyal,
was appointed by the ChiNat Government as acting
president of CATC. On 16 November, Ango Tai dismissed

96

the defecting employees and appointed Mr. William Parker
chief of security of CAT, to be concurrently chief of
security of CATC. On the next day Parker appeared at
the airport with 75 special guards and with police
approval to post them around the aircraft. A few days
later, however, the Commissioner of Police informed
Parker that the guards must be withdrawn.

Proceedings were then begun in the Supreme Court,
and on 25 November Chief Justice Sir Lesley Gibson
granted an interim injunction prohibiting the defect-
ing employees from entering or remaining on CATC
premises or from removing or tampering with CATC
property. Similar actions were undertaken with regard
to CNAC assets .

After hurried consultations with the Chinese
Nationalist Ministry of Communications and other
offices of the Nationalist Government, it was agreed
that Chennault and Willauer would prepare an offer to
purchase all of the government-held interest in CNAC/
CATC.' This letter was prepared, but it became obvious
that the Minister of Communications, Tuan Mo Chieh,
was dragging his feet on the matter, and apprehension
was felt that British recognition of Communist China
might be made before the letter of acceptance had been

97

signed by the Nationalist Government. Once the ChiCo.ms
were recognized by the British Government, any claim
that the Nationalist Government might try to put forward
would, of course, be hopeless.

On 5 December Chennault and Willauer sent an urgent
cable to the Generalissimo, who at the time was at
Cheng-tu, advising of the extreme urgency, and flatly
stating that they questioned the good intentions of
the Minister of Communications. It noted that the
Nationalist Government had two alternatives:

a. To order the Minister of Communications
to sign the letter of acceptance from the
Nationalist Government, or

b. For the Executive Yuan to take action
directly on the matter.

The apprehensions of Chennault and Willauer were
confirmed when the Minister of Communications went from
Taipei to Hong Kong without having signed the letter
of acceptance.

On 11 December the Executive Yuan of the National-
ist Government designated Premier Yen Shi-shan as
temporary Minister of Communications. Premier Ven
then immediately designated one Liu Shao-ting as
chairman of the Board of Governors of CATC and one

98

Nih Chung-sung as chairman of the Board of Directors of
CNAC. The letter of acceptance, together with the
promissory notes and the bills of sale, was signed by
Nih Chung-sung on 13 December 1949 and by Liu Shao-ting
on 12 December 1949.

Under the terms of the letter and offer of accept-
ance, Chennault and Willauer purchased all of the assets
of CATC for $1,500,000, issuing three joint promissory
notes in the sum of $500,000 each, payable without
interest. They purchased 80 percent of all of the
assets of CNAC for $2,000,000 payable in joint promissory
notes, one in the sum of $600,000 and two for $700,000
each .

In order to insure that the purchase of CNAC was
legally binding, it was necessary to buy out the 20
percent interest from Pan American Airways. Pan Am
refused to cooperate in the matter and indicated that
they would retain their interest unless paid off in the
amount of $1,250,000. Through the intervention of T.V.
Soong,' the Nationalist Government advanced the
$1,250,000, and on 4 January 1956 notified the British
Government and the Hong Kong Government that the 20
percent interest formerly owned by Pan American Airways
had been purchased and transferred to Chennault and

3 E V*ET

Willauer .

For legal purposes, Chennault and Willauer decided
that it was preferable to have the assets held by a
corporation rather than by a partnership. Therefore, a
Delaware corporation, Civil Air Transport, Inc, (CATI),
was formed, and all of the interests held by Chennault
and Willauer were transferred to this corporation in
consideration of notes for $3,900,000. This transaction
occurred on 19 December 1949. The 20 percent Pan
American interest was also transferred into CATI.

The Nationalist Government was deeply concerned

over the pending litigation. Foreign Minister George

Yeh told Chennault and Willauer that the government

wished to employ top American legal talent to represent

its interests in preserving these assets. Mr. Corcoran's

office in Washington then approached the firm of Donovan,

Leisure, Newton and Lombard to ascertain whether they

would undertake the case. OPC was queried at .the time

as to whether there would be any objections to the selec-

48/

tion of General Donovan's firm. The OPC response was
that ' this was perfectly satisfactory, but that General
Donovan’s firm should be employed and paid by the
Chinese Nationalist Government. The memorandum -to the
Director referenced above made it clear that OPC was
maintaining a position which it had taken at the time of

s

the defection; namely, that it would assist where pos-
sible, but that it would not become involved unless the
situation changed to one that would fall within the
scope of OPC activity; unless specifically requested by
the Department of State and/or Department of Defense,
no action would be taken by OPC.

The Donovan firm immediately dispatched Mr. Richard
Heppner and Mr. Mahlon Perkins to Hong Kong to commence
preparations for the upcoming court actions. A short
time thereafter Donovan came out to Hong Kong and spent
a few days in order to insure that matters were progress-
ing properly and to familiarize himself with the situ-
ation on the ground.

One of the most pressing and important tasks that
had to be accomplished was to secure American regis-
tration for all of the aircraft that were involved.

Since the records which would be required in order to
secure such registration were not readily available,
it was necessary to bribe a number of the defected
employees in order to get access to the aircraft and to
obtain the necessary information. As rapidly as pos-
sible this information, was secured and passed on 'to'"'
Washington. Pressure had to be brought to bear upon the
CAA in order to obtain the necessary registration since

v 101

S r r\ No T' rrs

XU L* iVv -a

it was not possible for the CAA physically to inspect
the aircraft in question. However, the aircraft were
all under American registration at the time of British
recognition of the Chinese Communist Government, which
was at midnight of 5-6 January 1950.

On 21 December 1949, the Hong Kong courts had
granted an injunction against any tampering with or
removal of the CNAC/CATC assets in the Colony by either
party, but the Chinese Communists were permitted to
remain in physical possession of the assets, including
those assets located on the airfield and other assets in
warehouses and offices elsewhere in the Colony. By an
Order in Council, dated 10 May 1950, the' Governor of
Hong Kong was directed to maintain complete control of
all assets until he was satisfied that ownership or
right to possession of the assets had been finally
determined. Technically this meant that all of the
assets should have been placed under British juris-
diction. However, the Hong Kong Government again per-
mitted the Chinese Communists to remain in physical

possession. This was noted by the Privy Council at a
49/

later date* —

Although OPC had decided against active partici-
pation in this litigation, it had instructed the OPC

\ 102

S T?

o v *r

representatives in CAT to assist and encourage ChennaUlt
and Willauer in their efforts. The Chinese Communists,
having physical possession of the assets, were in a
position to smuggle valuable parts out of the Colony and
to damage the assets should there be an adverse legal
decision. It was, therefore, necessary for Chennault
and Willauer to take extraordinary precautions against
such measures. The OPC representatives assisted in
organizing a guard force to insure against such activ-
ities on the part of the Chinese Communists. This force,
of course, had no legal status insofar as the British
police were concerned, but fortunately, through Parker's
excellent relationship with the police, the force was
generally effective in preventing large-scale smuggling
activities. Parker's British citizenship and the
probability that he was at least an informant for the
Hong Kong police represented cause for concern with
regard to OPC operations; however, with regard to this
particular affair, the CNAC/CATC litigation, there is
no doubt that he was effective and helpful.

At the time CAT was desperately short of funds and,
from time to time, it was necessary for Cox and Head-
quarters to make cash advances in order to pay guards,
and for legal and other expenses attendant upon the

preparation of the legal case and for the protection of
the assets. Most, if not all, of these advances were
either authorized by Headquarters if the request could
be made in time, or later approved by Headquarters after
the reason for the advance had been explained.

In order to appear before the Hong Kong courts, it
was necessary to secure the services of a Hong Kong law
firm. The firm of Wilkinson and Grist was retained for
this purpose. Later Sir Walter Monckton, a prominent
barrister and a member of the Conservative Party in
England, was also retained. As an illustration of the
high order of legal assistance that was obtained for
this litigation, when the Labor Government was over-
thrown and the Conservatives came into power, Sir Walter
Monckton replaced Sir Hartley Shawcross as Solicitor
General. Sir Hartley's services were then retained to
replace those of Sir Walter, particularly for the presen-
tation of the appeal before the Privy Council.

To summarize briefly the successive court actions,
on 19 May 1950 CATI issued a writ in the Supreme Court
in Hong Kong against CATC, claiming that the CATC
assets within the jurisdiction of the Hong Kong courts
were the property of CAT. The action was tried before
the Chief Justice of Kong Kong on 27 and 28 March 1951,

04

and on 21 May 1951 the judge delivered a reserved
judgment denying the claim and directing that any
appeal be brought within two months. An appeal was
promptly filed and the appeal was heard by the full
Hong Kong Supreme Court on 21 and 22 August 1951. On
28 December 1951, the full court dismissed the appeal.
Permission was immediately requested to appeal the
decision to the Privy Council and this was granted. On
28 July 1952 the Privy Council reached the verdict that
the appeal be allowed and so advised Her Majesty, and
on the following day an Order in Council allowing the
appeal was made.

It should be noted that, although initially CATI
lawyers attempted to combine the CNAC/ CATC litigation
in one package, the Hong Kong court had decided that
the two cases should be tried separately and directed
that the CATC case should be heard first. The CNAC
litigation was, therefore, held in abeyance throughout
this period, pending the final decision with regard to
CATC.' When the final CATI appeal on the CATC case was
upheld at the highest level that could be resorted to in
the British judicial system, the Privy Council being'
roughly equivalent to our Supreme Court, the CNAC
litigation went practically by default and no further

extensive litigation was required.

Among the CNAC/CATC assets which were sold to
Chennault and Willauer and then CATI were cash .deposits
in California banks and a large supply of spare parts.
The Chinese Communists laid claim to these assets
through their agents and attorneys in the United States.
OPC advanced funds for the legal action to block the
Communist claims and recover these assets, with the
understanding that in the event of recovery these
advances, together with advances made to support the
Hong Kong legal activity, would be fully reimbursed to
the Agency. A favorable judgment for CATI was received
on 1 December 1950, covering $1,310,000 in bank deposits
and aircraft spare parts valued at $250,000. Financial
reimbursement to the Agenty for funds advanced was
assured.

On the evening of 28 July 1952, the Hong Kong
authorities advised CAT and CATI of the forthcoming
proclamation of a favorable decision of the Privy
Council, and further advised that Hong Kong authorities
intended to remove the Chinese Communists who were in
possession of the physical assets and who were camped' on
the airfield and in the other various properties, such
as the Bailey's Shipyard and the airline offices.

106

S e'VnH E T

Brennan, Rosbert and Cox quickly met at Brennan's apart-
ment. It was decided that' Brennan would remain there
near the telephone, while Rosbert and Cox went out to
the airfield to observe the actual police takeover. The
two drove out to Kai-tak Airport and crouched in a ditch
just outside the fence surrounding the airfield. At
about 3 a.m, police moved in very swiftly. They were
prepared for resistance, carrying their bamboo shields
and wearing helmets. The Chinese Communists encamped
at the airfield, as well as at the other installations,
were literally caught with their pants down. The whole
action took less than ten minutes, and the ChiComs were
quickly escorted out of the various locations. Rosbert
and Cox remained at the airfield until dawn in order to
observe whether or not the ChiComs would organize any
kind of a counteraction, but none was forthcoming. The
Commissioner of Police, Mr. McIntosh, stressed the fact
that CATI must act as rapidly as possible in order to
remove the assets from the Colony, because as long as
they remained there it would be an open temptation to
the ChiComs to take some kind of sabotage or other action
against the assets.

Up to this point, this section of the paper has con-
cerned itself with the CNAC/CATC litigation as observed

107

by and participated in by CAT in the field. With the
favorable decision of the Privy Council on the appeal,

CAT participation became, as requested, largely that of
providing technical assistance to CATI in their efforts
to evacuate the assets from Hong Kong. The emphasis on
further activity was largely concerned with negotia-
tions between CIA Headquarters and CATI management in
Washington. The files on these negotiations are
voluminous, and since CAT was not directly concerned no
attempt will be made to cover them in detail, but rather
to quickly point out the high spots of what was going on
in Washington.

It has been previously noted that at the time
of the defection the field had urged OPC to take whatever
actions might be required to deny the assets of the two
airlines to the ChiComs. Headquarters replied, that
while every assistance should be given to Chennault and
Willauer, it was not felt at the time that it was a
proper undertaking for OPC. On 9 December 1949, ADPC,
in a memorandum to the DCI , provided him with a situa-
tion report regarding the CNAC/CATC assets in Hong Kong
and the extent of OPC participation in the effort's to
deny the assets to the Communists . OPC had consulted
on the situation with the Department of State and the

S 5k C RET

Department of Defense, suggesting that action be taken
with a view to preserving the equipment. The Depart-
ment of State expressed concern over the matter to the
British Embassy in Washington, but no answer had, as of
the date of the memo, been received from the British.

The DCI was advised of the hiring by CATI for
counsel of the firm of Donovan, Leisure, Newton and
Lombard, who had accepted the case,- At that time the
OPC representatives in the field queried Headquarters
as to whether or not this had been arranged by Head-
quarters. They were advised by cable on 7 December
1949 that this had not been arranged by OPC Washington,
but that the office was aware of the arrangement. It ■
was then suggested that the OPC communications link be
utilized for the transfer of the necessary funds for
payment of the fee. OPC Headquarters again replied
that since the transfer action was one entirely between
the Chinese Government and CATI attorneys, OPC should
in no way be involved, and the payment should be made
through regular commercial and banking channels.

The DCI was further advised that the position,
insofar as OPC was concerned, was that unless the situ-
ation took a turn which brought the case within the
scope of OPC activity, and unless specifically requested

109

S E T

by the Department of State and/or Defense to become
involved, no action would be undertaken apart from
keeping State and Defense advised as to further
developments .—

In a briefing memorandum prepared for Mr. Wisner
on 29 July 1952, it was noted that at a meeting on
13 March 1950, attended by the deputies of the Chiefs
of Staff and by members of the NSC senior staff, it
was stated to be in the national interest for CIA to
contribute to the support of the litigation of the
CNAC and CATC cases on a carefully negotiated and
reasonable basis . As a result of this statement it
was felt that the Agency had been authorized to advance
funds to CATI for litigation expenses in the field and
in the States against the assets in California. With
this authorization, such funds were advanced. With the
successful acquisition of the bank accounts and inven-
tory in California, the Agency was reimbursed for the
funds thus far advanced.

With the outbreak of the Korean War in June 1950
and the subsequent entrance of the Chinese Communists
into the conflict, the denial of the assets in Hong ""
Kong to the Chinese Communists became of significant
importance to the U.S. Government as a whole and, in

110

S E\E E T

particular, to CIA. The files indicate increasing
interest by CIA in the litigation, and a gradual feel-
ing on the part of at least certain officers in the
Agency that because of the assistance rendered in the
litigation and the political pressures which were be-
ing brought to bear on the British for a favorable
decision, there were vested in CIA certain rights with
regard to the ultimate disposition of the assets in
the event a favorable decision was made. From time to
time there was recognition in the flow of memoranda
that in the event of such a decision CATI was the true
owner, and although CATI would be susceptible to CIA
influence, there were no vested rights in CIA as long
as any funds that were advanced to CATI were reimbursed.

At the time of the purchase of the CNAC/CATC Air-
lines by CATI in late 1949, the two airlines had assets
on Taiwan consisting of five C-46 aircraft, over 50
vehicles of all types, communications equipment of sub-
stantial value, certain real estate leaseholds, and
freeholds; they also had operating franchises and
rights in Japan and elsewhere . CATI was not in a
position to take possession of or safeguard the prop-
erty or to operate under any of the franchises.

Ill
S

On 19 April 1950, CAT and CATI entered into an
agreement under which the five C-46 aircraft were sold
to CAT in consideration of the advancements, disburse-
ments, and services made to date by CAT on CATI's
behalf .

CATI agreed to charter and lease to CAT, until
further notice and without rent, charter, hire or com-
pensation, all of the miscellaneous operating equipment,
including the vehicles, communications equipment and
the hostels, and CAT would be permitted to operate
under the franchises, landing permits, and other oper-
ating rights acquired by CATI. CAT agreed to use its
best efforts to maintain, safeguard, and protect from
loss or deterioration all of the property so leased,
and would pay all costs and expenses incurred on
account of the use, operation, maintenance, and safe-
guarding of assets, including all costs and expenses
required to preserve and keep alive the franchises and
operating rights. It was estimated that these assets

properly depreciated and including the franchises and

51/

operating rights were worth not less than $250,000.

The assets inventory acquired by CATI through the
successful court decision in California had an esti-
mated value of approximately $225,000. A large part

S E CkR E T

of the inventory consisted of DC-4 parts and aircraft
overhaul equipment. Willauer, as president of CAT,
and envisioning that CAT would be expanding into four-
engine equipment, arranged for CAT to purchase from
CATI the entire inventory.

During the early spring of 1951, the Agency decided
to cut back on the CAT operation to a more economical
and manageable size. At a meeting with Willauer and
Brennan on 14 May 1951, the nature of this cutback was
explained, and it became apparent that any plans for
obtaining four-engine equipment were not envisioned at
that time. At this meeting Willauer said that he
understood there was concern over the fact that he had
arranged a purchase by CAT of the CATI assets, and he
also said that he had actually abused his fiduciary
position as a protector of the interests of the
holders of the CATI notes in selling these parts at
their original list price. The increased true value
of these parts was substantial, and therefore CATI was
losing a just return. He felt he could no longer take
such a position, and that, if possible, he would cancel
the purchase arrangements and undo the old agreement';

He felt that this eventually would mean a considerable

113

S E CNR E T

loss to CAT, which at a later date would be forced to

procure the necessary parts on the open market at
52/

inflated costs. —

Apparently no progress was made with regard to the
reduction of the contract, so that CAT would purchase
only those parts which were required for the mainte-
nance of the reduced fleet . It was estimated that the
total value of such parts would be approximately
$70,000. On 28 November 1951, a number of senior CAT
officials met with Mr. Brackley Shaw, the counsel for

CAT, to discuss the problem 1 MrJ

Special Assistant for Inspection for OPC, stated that
the purpose of the meeting was to discuss whether
there was any liability or contract for the purchase
of these parts by CAT from CATI, and what further
action should be taken with reference to the property
which was purchased, if there was such a valid contract.
The memorandum for the record on the meeting indicates
that there was also submitted at that time a separate
document (Tab A) containing a chronological recita-
tion of the facts concerning the negotiations on the
subject and another written statement (Tab B) of*
questions prepared by Mr. which would be dis-

cussed at the meeting. Unfortunately neither Tab A

nor Tab B is available, but the rather lengthy memo-
randum lor the record does give a pretty good estimate
as to the content of each Tab. All of the questions

were discussed, and the con-

prepared by Mr

sensus of the meeting appeared to be that there was a
valid contract for the purchase of all of the CATI air-
craft parts, engines, and other equipment, based on
the chronological record of the facts concerning the
negotiations. The memorandum for the record does not

indicate that any agreement was reached on any definitive

53/

recommendation for action.

However, on 30 November 1951, a draft agreement
was prepared which provided that CAT would agree to
purchase certain aircraft parts and equipment with a
total inventory value of approximately $67,000. In
addition, CAT could undertake to sell all the remain-
ing CATI inventories, acting as an agent of CATI.

There is no indication that this draft agreement was

ever placed in final form or that it was ever accept-
54/

able to CATI . —

On 6 February several Agency officials met with
Corcoran at his office to discuss various matters in
connection with the accounting as between CAT and CATI.
The last sentence of the last paragraph of the memorandum

115

s eXr e t

for the record states rather cursorily the following:

"He /Corcoran7 did mention the fact

that he paid out $500,000 to the bank of

Taiwan at the request of Willauer (in pseudo)

presumably to protect our interest during the

55/

franchise negotiations state."

Apparently the Agency did not realize the incon-
gruity of this at the time. In point of fact, this
payment to the bank of Taiwan was to create several
problems of great magnitude for CAT. The Nationalist
Government was enraged that funds which had been
recovered by CATI from the CNAC/CATC bank accounts in
California had not been applied against the notes held
by the Nationalist Government covering the purchase by
CATI of CNAC and CATC, notes which aggregated several
million dollars and also included the $1,250,000
advanced by the Nationalist Government to purchase
the Pan American interest in CNAC. Also, the franchise
operating rights under which CAT operated were vested
in them by the Nationalist Government and not by the
Government of Taiwan. These problems will be dis-
cussed more fully in Volume II, Part I, CAT - Manage-
ment, Legal, Fiscal and Accounting Aspects of this
history.

116

On 28 January 1952, the General Counsel wrote to
the DD/P with regard to a meeting he had held with
Mr. U. Alexis Johnson, Deputy Assistant Secretary of
State for Far Eastern. Affairs, and Mr. Krentz of the
State Policy Planning Staff. Certain points had been
raised with regard to the appeal to the Privy Council
which CATI was preparing as a result of the unfavorable
decision on the CATC case in the Hong Kong courts . The
General Counsel desired to discuss with the DD/P and
OPC/FE the major points raised by Mr. Johnson, These
points together with a brief summary of the General
Counsel's views on each point were as follows:

"a. Do we wish to expedite or delay the
appeal?”

CATI will undoubtedly be anxious to
have the appeal heard at the earliest possible
moment as the CNAC case must wait upon it.

However, CIA's primary interest is denial of
the planes to the Communist Chinese and not a
positive desire to obtain a favorable decision
for CATI. Judgment for CATI would create a
wholly new series of problems due to the dual ' "
role filled by Chennault and Willauer and pos-
sibly create another denial problem. The longer

the planes lie in limbo, the fewer the problems
we are faced with, unless prepared to take over
the planes in the event of a favorable judgment.
On the whole, the General Counsel favored delay-
ing action and believed it could be accomplished
with the cooperation of the State Department. He
suggested that the Privy Council might decide it
would not hear the appeal on the CATC planes
until the CNAC case had proceeded through the
Hong Kong courts .

"b, A related problem is what result do we
desire in the Privy Council?"

We do not wish judgment for the Com-
munist Chinese. The General Counsel is not
aware of a precise Agency position on whether
CIA actively desired judgment for the plaintiff.
If CATI gets good title to the aircraft they
might try to repair and operate them. This would
complicate the CAT franchise picture and
establish a competitor for CAT.. CATI might
determine to sell the planes to the highest
bidder, which would almost certainly be the
Communist Chinese. A deal might be made with
the Chinese Nationalists and the planes once

118

S E

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more run as a Chinese company, thus liquidating
CATI’s obligation on the aircraft. Once again
it might be desirable for the planes to lie
idle in Hong Kong until no longer repairable.

"c. In the event final judgment is given
to the plaintiffs, have we a concrete plan to
cope with the ensuing problems?"

A knowledge of CATI's intentions with
regard to the disposition or utilization of the
aircraft is required. The Chinese Nationalists
will be looking to CATI for settlement of the
notes they hold against the CATC assets. As a
last resort, CIA might be forced to purchase the
assets in order to deny them to other purchasers
At least we would be in a position to have infor
mation on the assets, their condition, repair-
ability, and the flyability of the planes that
was so sadly lacking when the Agency bought CAT.

"d. In the event of judgment on behalf of
the Communist Chinese, Mr. Johnson asked if we
had a current and concrete plan for sabotage of
the planes or for denying them to the Communist's
by other means . "

119

T

Mr . Johnson appeared to be fully in
favor of sabotage as a last resort but was con-
cerned with the international repercussions that
might result if this was accomplished. The
ChiComs could move the planes to Shanghai by
water. This would present opportunities for
sabotage. State suggested that the case might
be referred to the United Nations for submission
to the International Court on the same basis as
that requested by the British in the Anglo-
Iranian oil situation. This point should be

thoroughly studied as such a move would probably

56/

tie up the planes indefinitely.

In a memorandum, dated 3 July 1952, the Inspector
General discussed the problem of what to do if a
favorable decision was received from the Privy Council
on the CATI appeal in the CATC case. The possi-
bilities were listed as follows:

1. Sabotage the planes, but not to be
done if the appeal is won, and only as a last
resort if lost.

2. To advise or, assist in moving the -
planes to Taiwan, where CAT. has the best and

120

T

cheapest repair center in Asia. However, if
this were done the Chinese would almost surely
grab them and use them to compete with CAT.

3. Repair at Hong Kong by JAMCO (a British
owned air maintenance facility) . The second
cheapest way for rehabilitation, , but probably
too dangerous because of the possibilities of
sabotage by the ChiComs.

4. Advise or assist in moving the planes
to Japan or to the Philippines. This would be
cheaper than movement to the mainland, but the
capabilities or existence of facilities was not
known .

5. Advise or assist in the movement of the
planes to the west coast, which would be expen-
sive in terms of movement and rehabilitation
but provide a better place to market the
planes. The Agency had four basic interests

to serve. These were:

a. to deprive the ChiComs of the
aircraft;

b. to insure that they were not used
to set up competition with CAT;

121

c. to obtain planes for the American
economy;

d. to obtain the kudos in the Far East
which would result from the aircraft being
evacuated under the American flag.

6. It was recommended that the Agency make

a contract with CATI in which the Agency would be

given the right to dispose of the aircraft in

return for financing the removal and repair. The

first proceeds of the sale would go to reimburse

the Agency for their expenses. Next, payment

would be made of the notes of the Chinese

Nationalists, and the balance divided between

57/

the Agency and CATI on a 50-50 basis.

In a summary written immediately after the above
memorandum, the IG summarized the assets involved as
follows: CATC assets include 5 Convairs, 18 C-46's

and 17 C-47’s, 6 or 7 of which may have been
sabotaged. In the CNAC suit, which will be heard
later,' involved are 5 DC-4's, 1 PBY, 25 C-47’s and
C-46's. Spare parts of a value ranging somewhere
between $100,000 to $300,000. It was estimated that''
after rehabilitation of all the aircraft and with

\ 122

S E C\E T

spare parts involved, the total market value would be
approximately $5,000,000. Outstanding against the
title held by CATI are $4,750,000 non-interest bear-
ing bearer notes owned by the Minister of Communications

of the ChiNat Government which could probably be settled

58/

for an estimated $3,000,000.

On 28 July 1952, the same date as the favorable
decision by the Privy Council, the DCI was advised that
the objectivs of the Agency were to insure that the air-
craft did not enter into any position competitive with
CAT, and to insure that either through the sale or re-
sale they would not eventually reach Communist hands;
also, to insure that CAT was not subject to reprisals
by the ChiNat Government if CATI in any way failed to
live up to its contractual obligations.

(N.B. The ChiNat Government consistently refused to
accept the fact that there were any real differences be-
tween CAT and CATI; this, of course, was based on the
fact that Chennault and Willauer were the principal
persons in the Far East involved in both the corporations.

Denial of these assets to the ChiComs should be ex-
ploited as fully as possible from a psych-war viewpoint.

It was concluded that in view of the Agency's NSC
10/2 responsibilities and of any possible impact on
CAT a close continuing Agency interest was required

123

as to the disposition of the assets and could only be
insured if the U.S. Government exercised full control
over such disposition. This could best be achieved by
underwriting the evacuation and rehabilitation costs,
and only CIA was in a position to enter into the
necessary contractual arrangements with CATI to accom-
plish the above. It was recommended that CIA assume
complete responsibility on behalf of the U.S. Govern-
ment in this matter, and that a project be prepared
which would authorize expenditure up to $3,000,000 for
accomplishment of the U.S. objectives. The project
should be written to provide the maximum exemption
and/or flexibility from all Agency regulations and
procedures. Full authority for the implementation of

the project should be placed on a single individual

59/

acting for and in the name of the Director. —

On 30 July 1952 the IG wrote a memorandum for

60/

the record which stated: —

"Mr. Corcoran made a deal with Sir
'Oliver Littleton, Colonial Secretary,
under which Mr. Corcoran agreed not to
take the planes directly to Formosa and *

Sir Oliver agreed:

a. to guarantee protection to the planes

124

S E

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b. to g-uarantee to make possible the
repairing- of the planes in place;

c . to see that the Order in Council

is broad enough to cover everything, includ-
ing the parts off the premises;

d. to supplement the order so that by
Executive Order CATI has the other assets;
and

e. agree to play ball if they elect
not to make the repairs in place."

Although the above appeared to be quite a favor-
able agreement reached with the Colonial Secretary,

Mr. Corcoran was of the firm opinion that the single
provision that the planes could not proceed directly
to Formosa greatly increased the cost of the evacua-
tion and rehabilitation of the aircraft. He was con-
vinced that this single provision was the result of
strong pressures by British interests in Hong Kong,
particularly by the Keswick Brothers of the Jardine
and Mattheson Company, and by Butterfield and Swire.

He stated that they wanted to force CATI into a
position where they would have to use JAMCO in HOng"
Kong to rehabilitate the planes or else to sell the
aircraft to the British interests, who would then

rehabilitate them at JAMCO and place them on the
market. This would undoubtedly result in their even-

6 ]

tually falling into the hands of the Chinese Communists. —
Unofficially, the reasoning given by the British
for the restriction against any direct movement of the
aircraft to Taiwan was that such a move would greatly
damage, if not destroy, the juridical base on which the
Privy Council had upheld the CATI appeal. This was that
there had been a valid and legitimate sale by J 'V,' Chinese
Nationalist Government, recognized by Great Britain at
the time of sale, to American business interests. Any
direct movement of the assets to Taiwan would lead to
charges that the entire transaction had merely been a
device by which the ChiNat Government sought to retain
their ownership. (It is not inconceivable that if the
aircraft had been moved to Taiwan, the ChiNat Govern-
ment might have taken some action based on the notes
given , to them by CATI, which might have confirmed the
suspicions as to the legitimacy of the sale.)

immediately following the favorable decision of
the Privy Council there was a series of meetings
between representatives of the Department of State, "
Department of Defense (principally the Navy) , and
the Agency with regard to how the evacuation and

126

SEC

T

disposition of the aircraft and spare parts should be
handled. A Presidential Directive had been received
authorizing a transport aircraft carrier , (TCVE) to
proceed to Hong Kong to pick up the more valuable of
the aircraft.

There was a considerable amount of indecision as
to what action to take, since in addition to picking
up the CATC Convairs, it was considered desirable to
pick up the CNAC DC-4's. However, since as yet no
decision had been made by the courts with regard to
the CNAC assets, it was considered that rather than
delay (particularly because of the British authorities'
urgent desire for the evacuation to be accomplished as
soon as possible), that the Presidential decision be
altered so as to permit the TCVE to pick up the
Convairs and then as many of the other CATC assets as
it could accommodate.

There are many memoranda involved during this
period, with no one clear-cut memo giving the actual
finai decision. However, a TCVE did come to Hong
Kong and picked up the Convairs and as much of the
other CATC assets as it could accommodate. The 'Hong
Kong court rather quickly upheld the CATI appeal in
the CNAC case, and a second carrier came to Hong Kong

i

127

SEC

to pick up the DC-4's and other planes and material.

At the prodding of the Hong Kong Government, the
remaining planes and other movable assets were loaded
into seagoing barges, which were towed to the U.S.
Naval Base at Sangley Point in the Philippines and
then reshipped to the States by commercial sea trans-
port for rehabilitation, quite costly to CATI .

Fortunately, from the viewpoint of CAT management
in the field, the evacuation of all the assets of CNAC
and CATC was accomplished in a relatively short time
and to the satisfaction of the Hong Kong authorities.

There is no doubt that the successful litigation
pursued by CATI resulted in a considerable victory in
terms of the U.S. national interest. Mr. Corcoran and
his associates took great pride in the accomplishment
although they recognized that it could not have been
done without the assistance, financially and polit-
ically, of the Agency and other offices of the U.S.
Government. Unfortunately, it was a victory that ■
left a bitter taste in the mouth of CIA, CATI,. and
to a certain extent CAT because of many conflicts ""
of interest and areas of differences that arose

128

during the course of the long drawn-out litigation.*

♦Hindsight is, of course, always better than fore-
sight, but Cox felt strongly in November 1949 and
since that NSC 10 provided OPC with sufficient
authority to undertake the proposed denial oper-
. ation. As events turned out, OPC, and later the
DD/P, was required to advance funds, exert pres-
sures, and in many ways to undertake things all in
the national interest but for the financial benefit
of CATI and without any real control of CATI’s
actions. As indicated some of these actions created
very serious problems for CAT, The deterioration of
relationships between the old and new owners of CAT
was unfortunate and regrettable.

129

REFERENCES - VOLUME I

1. Paper, "History of Civil Air Transport
(CAT)" by Mr. Gates Lloyd, March 1964,
HS/CSG 1848

2. Article, "Chai Hui ! Hao Whitey," CAT
Bulletin, March 1954, p. 4.

3. Volume IV, Section IE, attachment to
"Report of Visit to Princeton University,"
Box II, Items 3 and 6, HS/CSG 900,

28 November 1966 .

4. Article, "How CAT Really Got Going," by
Whiting Willauer, CAT Bulletin,

February 1952, p. 1.

5. See reference number 3.

6. Article, "Brief Outline of CAT History"

CAT Bulletin, February 1953, p. 1.

7. Article, CAT Bulletin, February 1953, p. 2.

8. See reference 3, item 6.

9. Draft History of OPC Operations in China

from the beginni ng in 1949 to the

initiation of f , — _I_J

Section 2, p. 1,1 '

8 December 1950, HS/CSG 276.

10. U.S. Relations with China, Washington 1949,

p. 336 (Footnote taken fromH
History, HS/CSG 276.)

Draft

11. See reference 10, pp. 282-283, pp. 336-338.

12. NSC 34/2, Report to NSC by Secretary of
State, Subject: U.S. Policy Toward

China, 28 February 1949, TS-23162.

130

E T

S EM E T

13. Memo from ADPC to State/PP (Joyce)

Subject: Policy Direction in China,

Implementation of NSC 34/2, 8 March
1949, TS-30975 .

14. Memo from State/PP (George H. Butler)

Subject: Interpretation of NSC 34/2,

23 March 1949, TS-29384 .

15. Telegram 777, Ambassador Stuart, Nanking

to Secretary of State, 16 April 1949,
Subject: Approach by Ma Hung-kuei,

TS-6063 .

16. Telegram 233, Minister Clark, Canton,
to Secretary of State, 19 April 1949,
Subject: Comment on Ambassador Stuart’s

Telegram Regarding Ma Hung-kuei,

TS-6566.

17

;e for F ile (no addressee), signed by

I'lUI-C A 1/

18 . Memo of Convi
C . L . Chennai
10 May 1949 ,

srsation with Major General
alt, USA (ret.) unsigned,

1

19.

Memo from John Davies, Jr.
Su bject: Subsidy of CAT

for Offie

8 July 1949, TS-54945.

20. Memo for File by Mr. Paul Helliwell,

Subject: Conference in Department of

State, 2 September 1949, dated

3 September 1949.

21. Memo from ADPC to Mr. Frank, Subject:
Possible OPC Operations in Support of
Anti-Communist Elements in China,

6 September 1949, TS-31596.

131

SEC

T

22.

Memo from
General,

ia.

_C0P, Subject
JSpecific,

Findings and Recommendat:
Malcolm Rosholt

Lons__„of

10 September

1949, TS-31681.

23.

Memo from
General,

to

_COP, Subject
j Specific,

Report on Northwest China Mineral
Deposits, September 1949, TS-31716.

24. Memo to George F. Kennan, Counselor
Department of State from ADPC, Subject:
Covert Operations in China, 27 September
1949, TS-31796 .

25. Memo for F.G. Wisner, ADCP/CIA, from G.F.

Kennan, Subject: Covert Operations in

China, 3 October 1949, TS-31901.

dsveloned bv

1

7 October

1949, approved by Frank G. Wisner, ADPC,
12 October 1949, TS-31918 .

27. Termination) __

authorized bv F.G. Wisner, 10 April 1950,

28. Resum6 of Conversation between Generalissimo
Chiang Kai-shek and General C.L. Chennault
regarding private aid for resistance to
Communism in China; conversation occurred

16 October 1949 by Chennault, undated,
pouched to Headqu arters from Hong Kong,
passed H) b o OPC 30 November 1949.

29 . Report on confe rence betwee n Pai Chung-hsi

and Cox-Rosholt

held Kweilin

15 October 1949. File 65-6

*21/79,

30, See Footnote at bottom of page 32.

31. See Footnote at bottom of page 35.

132

32. Progress Report Number 1, to OPC from
Alfred T. Cox, 26 October 1949, TS-35270.

33. Letter from General Pai Chung-hsi to
Ge neral C.L. Chennault, 14 December 1 9 49,

34. Letter from Chen Chi-t an g to Chennault .
14 December 1949. f

35. Memo for Kermit Roosevelt and Frank Lindsay
from F.G. Wisner, Subject: Comments of

State and Defense Departments Representatives
on Status Report on China Operations,

25 November 1949, TS-35541.

36. Memo for ADP C from C'PP, Sub ject;

1

21 December 1949, TS-35750.

pass to Cox, 30 December 1949,

TS-96247.

38. Memo from Wisner to Messrs. Frank, Lindsay
and Offie, Subject: Policy Guidance on

OPC Operations in China, 19 December 1949,
TS-35688 .

39. Memo from G.F. Kennan t o F.G . Wisner

t Subject:

Covert Operations in China, presumably
dated 30 December 1949, TS-35850.

41. Letter of Instructi ons from ADPC I
to Cox 3 October 1941T,

TS-3 187*5 .

133

42. Memo for A.T . Cox' from ADPC

1 i Subject; Supplementary

Letter of Instructions , 10 March 1950,
TS-38614 .

Card Notation

J

44.

Memo, no addressee,.

|

2 1/2 Year Summary,
>52.

3 October 1£

46.

47.

Memo for Mr, ___

Subject: Supplementar y Le t ter of

Instructions to Cox |

7 March 1950, TS-38533.

TS-38495,

Basic reference cable , _ . ^

to Headquarters, TS OPC, 30 October 1950.

48. Memo for DCI from ADPC, Subject; Situation
Report Concerning Planes . and Other Assets 1
of CNAC and CATC in Hong Kong ; Extent of
OPC Participation in Efforts to Prevent
These Assets From Falling Into Communist
Hands, 9 December 1949, ER 0-7909.

49. Privy Council Appeal No. 15 of 1952;

The Council states that such physical
possession of the assets since it was
illegal under the terms of the Order in
Council could not be considered to have
given the Chinese Communists any legal
rights because of such possession.

50. See reference number 48.

51. Memo CATI Assets in Possession and
Control of CAT, Inc., 16 December 1951,
unsigned .

134

s K» Et

S E C\fi E T

52. Memo for the Record, Subject: Meeting

14 May with J .J. Brenn an, Whit ing

Willauer ,1

signed bv l I . i

OPC Registry _ _ .

53. Memo for Record, Subject: Purchase of

Aircraft Parts, Engines, and other
Eq uipme nt ( with draft agreement attached)

by Special Assistant

for Inspection OPC, 30 November 1951.

54. Memo for Record by ! 1

Subject: Meeting on Purchase of Aircraft

Parts, Engines and other Equipment from
Civil Air Transport, Inc. by CAT, Inc.,

7 December 1951, TS-67726 .

55. Memo for the Record, Subject: Conversa -
ti on with Th omas Corcoran byi j

f 1 7 Febr uary 1951, OPC

Registry L T

56. Memo for DD/P from General Counsel,

Subject: Appeal of the Hong Kong Airplane

Cases, 28 January 1952, TS-58412.

57. Memo for the Record, Subject: CATI

Claims on Hong Kong by Stuart Hedden,

IG, 3 July 1952, TS-63795.

58. Memo for the Record, Subject: CATI Law-

suit by Stuart Hedden, 14 July 1952,

TS, no Registry number given.

59. Memo for DCI from DC/EE, Subject:

Aircraft in Hong Kong, 28 July 1952,
TS-22239.

60. Memo for the Record by Stuart Hedden,

Subject: CATI Planes, 30 July 1952.

61. See Report of Interview with Thomas G.’
Corcoran, Volume IV, Section IV of
this History.

135

S E CNR E T